Reserve Forces

Lord Astor of Hever: My Lords, I beg leave to ask the Question standing in my name on the Order Paper. In doing so, I declare an interest, unpaid, as honorary colonel of a TA regiment.
	The Question was as follows:
	To ask Her Majesty's Government what steps they propose to take in view of the number of resignations from the Reserve Forces since 30 June 2005.

Lord Drayson: My Lords, Reserve Force manning has received the highest level of attention in the MoD and active measures are under way to improve recruitment and retention. Measures being implemented include enhanced support packages, improved financial support for reservists and employers, improved training and greater access to training courses, intelligent selection for mobilisation, improved welfare support and a new pensions and compensation scheme.

Lord Astor of Hever: My Lords, I am grateful to the Minister for that reply. All the indications are that the downward drift in the number of reservists—particularly the TA—fully trained and available for deployment has increased alarmingly. Does the Minister agree that the situation is now untenable, particularly as the Regular Army is so overstretched? What are the Government going to do to prevent a catastrophe?

Lord Drayson: My Lords, I do not accept that as a fair description of the position. We recognise that we have a challenge relating to retentions in Reserve Forces, but this is not a new issue. It goes back many years. We had turnover rates of about 20 or 25 per cent back in the 1970s, and we must recognise that it is in the nature of Reserve Forces. However, we have seen a drop in retention levels in recent years. We believe that the strong efforts that we have made to address the issue are starting to bear fruit. We have seen an improvement in the past couple of months, but one swallow does not make a summer. We need to see whether it is a continuing trend. We are not complacent. We are working hard in a number of areas, as I have described.

Lord Bramall: My Lords, does the Minister agree, or at least concede, that this serious situation has come about because of over-reliance on our Reserve Forces in operational areas to compensate for the wholly inappropriate cuts in the numbers and units of our regular forces? The volunteers and reserves have responded splendidly to the challenges of Afghanistan and Iraq, but surely the Minister must realise that they are being asked to do too much and to do it too often.

Lord Drayson: My Lords, while I recognise the great experience in this area of my noble and gallant friend, we have to realise that we are going through a period of reform in our Armed Forces. We set out in the Strategic Defence Review—that document is in the Library of the House—the way in which we would more closely integrate the Reserve Forces with our regular forces and this is paying dividends. The attitude surveys of members of our Reserve Forces show that there is a high level of contentment—80 per cent plus—in terms of their experience. We should also pay tribute to the very great contribution that the Reserve Forces make. More than 20 per cent of the troops on Operation TELIC 2 were Reserve Forces. Two MCs, one George Cross and a whole range of gallantry medals have been earned. We should not underestimate the great contribution that our Reserve Forces make.

Lord Garden: My Lords, the Minister may reassure us that things are not as bad as everybody says, but the fact is that on 1 November 2005 the strength of the TA was 36,940 against an establishment of 41,610. There is a rebalancing exercise going on. When is the Minister going to make an announcement about it? Most importantly, can he give us an assurance that this is not just going to be another cuts exercise in order to cover political embarrassment over poor retention and recruiting?

Lord Drayson: My Lords, it is important for us to recognise that we do not have a significant deterioration. The level of retention went through a decline approximately two to three years ago, to a new level. It has been pretty stable since then. There has been a marginal decline, which we have seen improving recently. This is not about restructuring, it is about us stretching every sinew to ensure that we are doing everything to be intelligent in the way that we are recruiting into the Reserve Forces. Noble Lords may have noticed a recent advertising campaign. We are now recruiting both for the Reserve Forces and the regulars at the same time, using the same advertising techniques and recruitment offices. This is really starting to work. It is not a rebalancing exercise.

Lord Glenarthur: My Lords, does the Minister not agree that the reasons for the outflow are rather more complex that just the numbers of operations in which reservists have to play a part? I declare an interest as chairman of the National Employer Advisory Board for the reserves. That fact is that society is changing, the world of work is changing, and relationships with families and employers are changing. A whole series of quite complex things need to be examined. Indeed, my board is examining them at the moment.
	There is no shortage of enthusiasm for deployment among many units. I declare an interest as honorary colonel of a TA field hospital, and honorary air commodore of a Royal Auxiliary Air Force medical unit. There is a great deal of enthusiasm for taking part in these operations.

Lord Drayson: My Lords, I pay tribute to the noble Lord, Lord Glenarthur, in his role as the chairman of the National Employer Advisory Board to the Ministry of Defence, and the fantastic work that it does in advising us. He is absolutely right. In 2006, we are in a different situation from the one we were in just 10 years ago. We in the modern Armed Forces need to respond to this. We need to recognise that a lot of the retention issues arise in the period after two or three years of service, when people have completed their training, before they go on operations. That is just at the time of life when people are thinking about getting married, settling down and so forth. We need to address these issues.
	The noble Lord is absolutely right that there is no shortage of enthusiasm on the part of the Reserve Forces for going on operations; I know, from my own experience, that it is quite the opposite.

Earl Attlee: My Lords, why does the MoD not routinely send observers, or even support, to reservists at a reinstatement committee at an employment tribunal?

Lord Drayson: My Lords, I do not have the answer to the noble Earl's question. I will have to write to him.

Lord Peyton of Yeovil: My Lords, the Minister seems to have misunderstood the original question. As I saw it, the noble and gallant Lord, Lord Bramall, was asking whether the use made of auxiliary forces was excessive. He was not questioning the value of their contribution, and nor is anyone else.

Lord Drayson: My Lords, I am grateful to the noble Lord for making that clarification. I am happy to assure the House that it is not a question of us making excessive use of auxiliary forces. We regard a level of approximately 600 people every six months as absolutely sustainable. We have no difficulty in maintaining that level. We have done so now on several roulements into Operation TELIC. We believe that we can sustain it really quite comfortably.

UN Convention on the Rights of Disabled People

Baroness Wilkins: asked Her Majesty's Government:
	Whether progress on the draft United Nations Convention on the Rights of Disabled People is satisfactory.

Lord Hunt of Kings Heath: My Lords, the Government consider that good progress has been made towards negotiating a UN convention on disability rights. At the last meeting of the committee tasked with drawing up the convention, a second reading of the text was completed. The chair of the committee has now published a further text which will form a good basis for discussions at the next meeting.

Baroness Wilkins: My Lords, I thank my noble friend for that reply. How do Her Majesty's Government intend to respond to the concerns expressed by disability organisations, such as Disability Awareness in Action, that have been deeply involved in the development of the convention? They said that the latest draft appears to reduce human rights entitlements for disabled people. It cites the lessening of rights to liberty and security of the person in Article 14, and freedom from exploitation, violence and abuse in Article 16, as two examples. Can the Minister assure the House that his officials will do all they can to ensure that the convention does not result in a lessening of disabled people's entitlements to human rights?

Lord Hunt of Kings Heath: My Lords, I reassure my noble friend that officials in my department—who have been working very hard in the negotiations, particularly during the presidency because negotiations as far as members of the EU are concerned are being led by the EU—have met frequently with organisations concerned with the rights of disabled people. The current position is that we think that the draft text put out by the chairman is an improvement but that there is some way to go to ensure that the convention gives disabled people full and equal access to all existing rights. We will continue to work with disabled people on those matters.

Lord Skelmersdale: My Lords, the Minister is absolutely right. Thanks to my right honourable friend Mr Hague and the Government's extension, we have some very good legislation on disabled rights in this country. What practical use to disabled people in this country is the convention likely to be?

Lord Hunt of Kings Heath: My Lords, before this country could ratify the convention we would have to ensure that our domestic legislation is compatible with the terms of the convention. Given the record of this country on disability legislation, in which this House has played a particular role, we hope that it will not be too challenging to ensure that all our laws are compatible. None the less, it is always helpful to have external monitoring of performance in this country. Equally, the benefit of this country ratifying such a convention is that it is part of a worldwide movement. The more countries that ratify the convention, the better the position for disabled people throughout the world will be.

Lord Addington: My Lords, do the Government agree that if we want to encourage the ratification of this convention, we should take positive steps to encourage people to follow us? Do they also agree that we should make sure that, in respect of our biggest future public event, the Olympic Games and Paralympic Games, the Olympic Delivery Authority, at the very least, matches the duties that are placed on public bodies under the last version of the DDA?

Lord Hunt of Kings Heath: My Lords, that goes somewhat wider than the Department for Work and Pensions, but I would be delighted to pass that comment on to the appropriate people.

Baroness Whitaker: My Lords, many disabled children are not registered. Their citizenship is often denied, together with access to education and healthcare. Can I ask my noble friend whether he supports the inclusion in the convention of an obligation for all states to ensure that children with disabilities are registered?

Lord Hunt of Kings Heath: My Lords, we do not support the inclusion because the obligation to immediately register all children at birth already exists under the convention on the rights of children. We want to be very careful about duplicating in a convention what is already in another convention, and therefore confusing countries. However, on the principle of whether registration is a good thing, I wholeheartedly agree with my noble friend.

Baroness Chapman: My Lords—

Baroness Walmsley: My Lords—

Lord Rooker: My Lords, it is the Cross-Benchers' turn.

Baroness Chapman: My Lords, will Her Majesty's Government ensure that disabled children will be fully protected from abuse and that their rights to inclusive, fully supported education will be upheld?

Lord Hunt of Kings Heath: My Lords, the current draft of the convention includes an obligation to take measures to protect persons with disabilities from all forms of exploitation, violence and abuse. We understand that the meaning of "all persons with disabilities" includes children. The draft convention also includes obligations to ensure that all persons with disabilities have equal access to inclusive education and that they receive the educational support they require. I assure the House that the Government fully support the inclusion of those obligations.

Baroness Walmsley: My Lords, is the Minister aware that, across the developing world, only 2 per cent of disabled children have any education at all? In this country disabled children in special schools do not have the same educational opportunities as those in mainstream schools. Can he make sure that the convention upholds the right of disabled children to a fully supported inclusive education if that is chosen?

Lord Hunt of Kings Heath: My Lords, the Government certainly support the inclusion of specific obligations in the convention to ensure that every child has an equal right to an inclusive and quality education. We also support the ability of parents to exercise choice in relation to the specific issue about special schools or mainstream schools.

Lord Morris of Manchester: My Lords, my noble friend is aware of my role in chairing, for Rehabilitation International, the World Planning Group, which drafted the original call for a UN convention. Is he aware how widely the Government's support for this highly important venture is appreciated; and will he now call for renewed vigour in expediting and concluding the debates in New York on terms acceptable to the organisations of disabled people?

Lord Hunt of Kings Heath: My Lords, perhaps I may first pay tribute to my noble friend for his inspirational leadership in this area. He presented the Charter for the Third Millennium to the Prime Minister in July 2000. There is no questioning the fact that that has been pivotal in helping us make progress. On when agreement is likely to be made on the text of the convention, my understanding is that there will be a meeting on the chairman's text over the next three weeks in New York. There is likely to be a further meeting in the summer, and the chairman hopes that agreement can be reached in the autumn—although experience in relation to work on conventions suggests that we should not take that as being absolutely certain. However, officials in my department, who are leading negotiations for the UK Government, will do everything they can to ensure that everything is done as speedily as possible, although in the end we have to make sure that the terms of the convention are acceptable to this country.

Hepatitis C: Contaminated Blood Products

Lord Morris of Manchester: My Lords, I beg leave to ask the Question standing in my name on the Order Paper. In doing so, I declare an interest as president of the Haemophilia Society.
	The Question was as follows:
	To ask Her Majesty's Government whether they are considering giving further help to haemophilia patients infected with hepatitis C from contaminated National Health Service blood and blood products and to the widows of those who have died.

Lord Warner: My Lords, as I have said previously, the Government have great sympathy for the pain and hardship suffered by the widows and dependants of those inadvertently infected with hepatitis C. But, as we have made clear repeatedly, the ex gratia payments scheme is designed to alleviate the suffering of people infected with hepatitis C and not to compensate for bereavement.
	However, I can announce today that my right honourable friend the Secretary of State and her counterparts in the devolved administrations have agreed to extend the period when claims can be made to the Skipton Fund on behalf of deceased patients by relatives or dependants. This means that the relatives or dependants of a person infected with hepatitis C through NHS blood and blood products who died after 5 July 2004, which is when the scheme became operational, will now be eligible to make a claim.

Lord Morris of Manchester: My Lords, I am grateful to my noble friend. Is he aware that 1,142 haemophilia patients have now died from being infected with HIV and hepatitis C by contaminated National Health Service blood and blood products, making this its worst ever treatment disaster?
	My noble friend told me on 11 December 2003 that Ministers,
	"do not consider that a public inquiry is justified".—[Official Report, 11/12/03; col. 937.]
	Is that still their position, despite mounting concern about the handling by in-house inquiries of the important issues raised—as former health Ministers—by the noble Lords, Lord Jenkin and Lord Owen?
	Can my noble friend say when the appeal system for the Skipton Fund will be operational; and is he aware that for it to have been ministerially decreed to deny hepatitis C widows the financial help available to HIV widows is widely seen as unjust and morally indefensible?

Lord Warner: My Lords, I am well versed in the noble Lord's concerns in this area and I pay tribute to his persistence. But it is important to stress that, despite the Department of Health's decision to make ex gratia payments, we do not accept that any wrongful practices were employed in relation to inadvertent infection of blood which led to hepatitis C, and we do not consider that a public inquiry is justified as we do not believe that any new light will be shed on this issue as a result.
	I acknowledge that the appeals system has been rather slow to establish the appeals panel, but it is now at the point where the NHS Appointments Commission is about to appoint members to the panel. We know, regrettably, that 57 applicants have indicated that they wish to appeal. I will certainly be pressing for this process to take place as quickly as possible.

Lord Jenkin of Roding: My Lords, do the Government intend to publish a review of the whole sad story of contaminated blood products and of the haemophiliacs and others who have been infected with HIV and hepatitis C? Is the Minister aware that after my long perusal last year of a large number of files that passed across my desk on this subject as Secretary of State for Health, I was able to confirm, as I had been warned, that all the papers dealing with contaminated blood products have been destroyed? How can the review possibly be comprehensive and tell the whole story if the key papers on how these infections reached these patients have been pulped?

Lord Warner: My Lords, let me reassure the House that there has been no deliberate attempt to destroy past papers. Officials have established that during the HIV litigation in the 1990s, many papers from that period were recalled. We understand that papers were not adequately archived and were unfortunately destroyed in the early 1990s. Officials have also established that a number of files were marked for destruction in the 1990s. Clearly, that should not have happened. When it was discovered that files had been destroyed, an internal review was undertaken by officials. The results of that will be made known as soon as possible. I know that the noble Lord has been in correspondence with the Permanent Secretary of the Department of Health and I understand that an answer will be sent to him on some of those issues as quickly as possible.

Baroness Masham of Ilton: My Lords, I also declare an interest as a vice-president of the Haemophilia Society. Why are we not as generous as Canada in helping those unfortunate people? Can the Minister reassure the House that CJD is not also a problem for those unfortunate people?

Lord Warner: My Lords, there is a difference between the position in Canada and in the United Kingdom and it is important to recognise that distinction. The awards being made in Canada follow a class action brought against the Canadian Government. A settlement agreement was reached with the federal government and, as such, the payment structure was based on claims for punitive damages. Subsequent inquiries found that wrongful practices had been employed and criminal charges were laid against the organisations, including the Red Cross Society, who were responsible for screening blood. There was no such wrongdoing in the United Kingdom and it is unfair to compare the two schemes. I will look into the latter point that the noble Baroness raises and write to her.

Lord Winston: My Lords, my noble friend uses the phrase "reassure the House", but is not one of the issues here the need to reassure the public, particularly those who feel very threatened when they are offered blood transfusions? Is there not a need for the Government to show care and compassion to these most unfortunate people?

Lord Warner: My Lords, the Government have shown care and compassion for those who are infected with hepatitis C. The scheme that is the subject of the Question was introduced by this Government. It was announced in 2003 and we are moving to make payments to people who were alive then and infected with hepatitis C. We have now spent well over £80 million in compensating them to help to alleviate their suffering.

Lord Addington: My Lords, do the Government not accept that whatever has been done here, they have given the impression of it being legalistic and slow and not being compatible with the needs of a very similar group? Will the Government give us an undertaking that that will not be the attitude in any future case?

Lord Warner: My Lords, let us go back to the basis of the scheme. As I have made clear repeatedly and repeat again today, the infection of people with hepatitis C was inadvertent. Nothing could have been done at the time with the technology available to assess the blood for that level of infection. The blood service did nothing wrong. We as a Government have put in place a scheme to alleviate the suffering of people who were alive after the scheme was announced in August 2003 to provide help for them. We have extended that scheme today in the announcement that I have made, so that the dependants of people who died after the scheme came into operation will also be eligible to make a claim.

Lord Owen: My Lords—

Lord Rooker: My Lords, we are well into the 25th minute. We must move on.

Palestine: Elections

Lord Dykes: asked Her Majesty's Government:
	Whether they have a view on the possibility that the Palestinian general election, planned for 25 January, might be postponed.

Lord Triesman: My Lords, President Abbas has stated that the Palestinian legislative election will proceed on 25 January. The Israeli Cabinet will vote on the issue of elections in east Jerusalem on Sunday 15 January. We hope that its decision will remove any possibility of the election being delayed. We urge both the Palestinian and Israeli authorities to co-operate in the facilitation of these elections.

Lord Dykes: My Lords, I thank the Minister for that encouraging reply. Will he make sure that the Israeli Cabinet does its best to allow east Jerusalem voters—Palestinian voters—to vote in these elections? It has already indicated provisionally that it would do so. It is crucial for them to take part in what is the effectively de facto renewed attempt to secure a full, sovereign Palestinian state. That is very important. Will he also have discussions with the Israeli authorities about easing the restrictions on free movement of Palestinian voters in Gaza and the rest of the West Bank?

Lord Triesman: My Lords, we are urging everyone to facilitate the elections in every way possible and to ensure—and this is important—that there is proper security and safety for those who will observe the elections. So far, acting Prime Minister Olmert has said that he will bring a comprehensive package to his Cabinet meeting. I do not doubt the difficulties of the discussions in that Cabinet given the security issues, but the signs so far are positive. We are urging that there should be a positive outcome.

Lord Janner of Braunstone: My Lords, I have just returned from the Middle East where I met many leading Israeli and Palestinian leaders. Does my noble friend agree that there is every chance that the elections will go ahead with Palestinian and Israeli support? But does he not regard as the greatest danger the refusal of Hamas to remove from its charter its determination to destroy and remove the state of Israel?

Lord Triesman: My Lords, I agree with the proposition that it is vital that all parties throughout the region ensure that these elections and the Israeli elections that will follow shortly thereafter are a complete success. Our position on Hamas participation is clear. The Palestinians have a right to vote for whomsoever they want. We welcome the participation of a wide range of parties in all elections. But, ultimately, those who want to take part in the political process cannot engage in armed activity at the same time. We support the quartet's call on 28 December for all participants in this election to renounce violence, to recognise Israel's right to exist and to disarm. For its part, the United Kingdom will have no dealings with the leadership of Hamas, or any other organisation, unless it renounces violence and its charter commitment to the destruction of the state of Israel.

Baroness Miller of Hendon: My Lords, I also have recently returned from Israel—in fact, last night—where I had discussions with many Israeli leaders and experienced journalists who know what is going on in the Palestinian area. They are of the view that Hamas will take a large percentage of the vote from Fatah. If it takes as much as 40 per cent, which has been suggested might happen, how does the Minister think that that will affect the democracy of the Palestinian state if it does not say that it will give up its desire to get rid of or to wipe out Israel?

Lord Triesman: My Lords, it would be dangerous in a parliament of another country to speculate on the likely outcome. The reality must be that the people of the area make their decisions and that we take a mature and responsible attitude to them. I hope that all parties in the Palestinian areas will not use any of the potential disruptions as an excuse for delaying these elections. It is very much in the interests of stability throughout the area that the elections take place on their scheduled date, and people will have to live with the results. As ever, that is the consequence of a democratic process. None the less—I repeat this and hope that I will be forgiven for doing so—we expect all parties to renounce violence and any charter demand for the end of the existence of the state of Israel.

Lord Soley: My Lords, has my noble friend taken note of the fact that, for what I think is the first time, Hamas has not put into its literature for the election a call for the elimination of Israel? If that is right, does it not indicate that there is movement within Hamas and other groups of that nature which we need to encourage? Although Hamas still has a deeply worrying philosophy, this approach indicates some movement within the organisation.

Lord Triesman: My Lords, I can confirm that. I have been careful to refer only to the charter issues that were raised in the questions. There is also still talk of an armed struggle, a factor which has an impact. But it is true that no mention is made of the destruction of the state of Israel in the manifesto. That represents a significant change from all past literature in this regard.

Electoral Administration Bill

Brought from the Commons; read a first time, and ordered to be printed.

Royal Mail

Lord Clarke of Hampstead: rose to call attention to the case for a government policy towards the Royal Mail which best reflects the national interest in all respects; and to move for Papers.
	My Lords, at this early stage I ought to declare an interest. Normally when I speak about the Post Office, I simply say that I am a former postman and very proud of it, but I ought to expand on that. My association goes back to the age of 14 when I joined as a telegraph boy and went through until April last year. That is almost 60 years of continuous involvement with the Post Office as an employee, a union representative and a trustee of the pension schemes. I just wanted to put that on the record because my concern is not one in the normal political sense. It is driven by a desire to try to protect a very valuable public service that has served this nation of ours for so long.
	May I say why I consider that questions should be put to the Government and answers provided—not just to the House but to the public the Post Office seeks to serve? The first question must be this: do the Government believe that the Post Office is a publicly owned organisation that has a responsibility and duty to provide an efficient service to every household and business in the United Kingdom?
	When the Government announced their plans for the reform of the Post Office in July 1999, many interested people, myself included, thought that at long last after years of neglect, lack of investment and interference, efforts were going to be made to tackle some of the difficulties that the Post Office had been faced with for such a long time. The leaflet issued by the DTI at the time was informative. It set out a statement from the DTI and talked about,
	"creating a world class service for the 21st century".
	Some noble Lords will remember this wonderful document. The announcement was described as a "visionary statement" and the then Secretary of State said:
	"We will maintain your existing postal services . . . We will improve postal services for all customers through greater choice, better quality and falling real prices . . . We will support a Post Office network which ensures you have access to public and private sector services . . . We aim to ensure the UK Post Office can compete in the fast-moving domestic and international postal market".
	The Secretary of State went on to say that he would,
	"establish clear and accountable relationships between the Government, the Post Office, the regulator and POUNC"—
	the Post Office Users National Council, later replaced by Postwatch. Any examination of what has happened since that visionary statement was made by Stephen Byers shows quite clearly that the vision has not been realised. Perhaps the débâcle of the costly and completely unnecessary creation and destruction of Consignia caused some blurring of the Government's vision.
	When this House debated the Postal Services Bill in May 2000, I repeated what I said in my maiden speech in December 1998. My view then, and it is unchanged today, is that the freedoms referred to in the Bill—commercial freedom; freedom to borrow and invest; freedom to enter into acquisitions, joint ventures and strategic alliances; and freedom to allow the workforce to share the success of the Post Office—would have been possible without the need to create a plc. The evidence bears that out.
	Any debate about the Post Office, Royal Mail, the Counters and Parcelforce Worldwide would be lacking in content if due recognition was not given to what has been achieved by implementing the strategic plan that has been executed by the Post Office board over the past few years. That achievement has been made at a cost of reduced numbers of deliveries, later deliveries and 33,000 jobs lost between March 2002 and March 2005. It is a record of achievement—it is also a record of job losses and reducing services.
	The achievement was assisted by the limited changes in pricing policy which were late in coming and, in my view, are still inadequate. They are nowhere near the levels charged by most, if not all, other postal administrations in Europe. A situation of limited resource has resulted from decades of under-investment. The situation is compounded by the under-pricing for the service it has to provide for its competitors—those organisations that, as confidently predicted by not only myself but others, would cherry pick from business customers. They are allowed to collect and sort 4,000 items or more and then put them into the Royal Mail system. Not for them the collection from street pillar boxes; not for them the requirement to deliver a universal service to the 27 million addresses in this country, a figure which is likely to arise by another million by 2009. For the benefit of this cherry-picking, they pay 13p per item. We are told, and no doubt will be told again, that the whole question of tariffs and pricing is the responsibility of Postcomm, the regulator. I was going to quote its remit, but I see that time is racing by, so I shall simply say that Postcomm is supposed to look after the public interest and to provide an efficient service. It opts out of any suggestion that it should make recommendations about closures of offices, whether in rural or urban areas.
	The approach by Postcomm, supported by the Government, is that Royal Mail directly subsidises its competitors, who make no contribution to the necessary support for the unprofitable parts of the business that arise from the universal service obligation. In effect, Royal Mail carries the cost of maintaining the infrastructure required for the obligation. At the same time it has to lose volume to the cherry pickers. My view, which is shared by many others, is that the regulator has misinterpreted its remit and seeks to undermine the Post Office and promote the interest of Royal Mail's competitors at the expense of Royal Mail.
	I am not alone in my concern at the way that Postcomm operates. During the past couple of days I have learnt of the concern of the magazine industry, which I would not normally be in touch with. It is concerned about recent recommendations in connection with the posting known as Presstream 2, the service which will have its regulatory protection removed from price control from next April. This, in the industry's opinion, will lead to discrimination between one level of traffic and another, and Postcomm is directly responsible. Rather than bore the House with the details of these representations, I undertake to pass the papers to my noble friend the Minister.
	So much could be said about the universal service obligation; suffice it to say that Royal Mail accepts the challenges that the obligation places upon it. It has demonstrated for more than 300 years its ability to fulfil that requirement. I suggest to my noble friend that it is time there was a proper review of the regulator. After five or more years of its operation, nothing can be lost in getting people together for a review.
	On the major issue of liberalisation, I shall confine my remarks to asking my noble friend if he will comment on why the liberalisation of the postal service was advanced from the date contained in the European guidance and why major competitor nations in Europe have delayed introducing their own liberalisation. The Netherlands and Germany—very serious competitors—will not introduce liberalisation until next year, and the French will introduce it in 2009, if we are lucky. Perhaps they are waiting to see what happens here. Perhaps they will get the benefit of our early introduction, but I would like the Minister's views.
	A large part of my life in the Post Office was spent dealing with industrial relations. I had intended to speak about the markedly improved industrial relations within Royal Mail and the Post Office as a whole, which I welcome perhaps more than most people here because I have been through some of the most difficult times of industrial relations in the Post Office. However, I see that my noble friend Lord Sawyer is listed to speak in this debate so I will confine my remarks at this point simply to say a sincere "thank you" to my noble friend for the hard work that he has put in with all parties to bring about this improved situation. The nation, not only the Post Office, owes him a debt of gratitude.
	The pension fund deficit is serious and large. However, it is not a matter for rash and hurried decisions. For many years, I had the privilege of being a trustee of the Post Office's main scheme and the shared cost scheme that was introduced later. I am confident that the current trustees, together with the Post Office board and the Government, can produce a strategy that spans a number of years to provide a solution to the deficit problem. However, what will be required is a recognition of the payments that were made from the Post Office to the Treasury during the 1980s and 1990s of more than £2 billion—money that went directly to the Treasury from the Post Office's revenue. Certainly, the Government should extend the period of a nil dividend from the Post Office while the deficit remains. There is so much to be said about the relationship between the Government and the Post Office. Unfortunately, 15 minutes does not give me time to cover much of what I would like to share with the House.
	The ownership of the Post Office has been the subject of much media comment and a lot of heart searching among the staff. I am sure that my noble friend the Minister knows that the question that I would like to pose to him now is serious. It concerns the appointment of the chairman of the Post Office, Mr Allan Leighton. Will my noble friend help to clear up a matter that has troubled me for some time? It concerns the method of selecting Mr Leighton for the job of chairman. Two years ago, I was told by a very reliable friend who witnessed what was going on that, when the shortlist was prepared and presented to the board, Mr Leighton's name was not on the list. The information that I received went further. It was said that a call was made from the DTI to the Post Office board to have Mr Leighton's name added to the list. The rest is history: he got the job. Is that factual? I do not expect a reply today, but I would like a reply in writing at some stage so that if my information is wrong at least that myth can be dispelled. If it is right, somebody should be saying something about what happened.
	It is important to know a little more about the appointment of the chairman and about any assurances that were given to him about what he could do with the Post Office. That is a deliberate question. For some time now we have had a chairman of the Post Office who, at almost every opportunity, talks about how he wants to have a share-based scheme—shared ownership. I am worried. We have a government pledge that there will not be a sale of shares in the Post Office and the Labour Party conference decision was that no sale should take place. A Warwick agreement was made. There is a manifesto commitment that the Post Office will not be sold off and just before Christmas 210 Members of Parliament in the other place were signatories to the Early Day Motion opposing any form of share sales—195 of them were Labour MPs.
	However, on 20 December we received the Trade and Industry Committee report on the Royal Mail after liberalisation. The report stated:
	"Whatever view this Committee were to take on the full privatisation of the Royal Mail we recognise that this Government has a manifesto commitment to keep the company in the public sector".
	The report also said that the explanations offered to the committee by the current management of Royal Mail were "far from complete" and that no coherent process for how shares would be transferred or traded had been presented to the committee. The report further concluded:
	"We believe there are less controversial ways to this such as the current profit sharing scheme".
	If the idea of sharing the success of the business is to be considered—and I believe that it should be—perhaps the idea of an overall productivity scheme, linked to savings, could be looked at. What I mean is that any productivity payments to staff should be an equal share of what could be allocated to staff after the annual results are made known, after recognition of pension fund deficit and reinvestment costs. Payments were made to staff last year. I believe that those payments could be linked to a savings scheme and put into a personal account, where staff could take their bonuses or share of the profits; they could leave those savings there with management adding interest. That would serve two purposes—it would save a complete drain immediately of the funds, and would give people an investment for the future.
	With respect to the current chairman of the Post Office, I suggest that if he has difficulty in coming to terms with the decisions that have been taken, he should either keep quiet and avoid further controversy or, if he cannot do that, he should do the honourable thing and resign.
	I have the greatest confidence that there is a good future for our world-renowned postal service. I understand that Sir George Bain is considering how the Post Office should evolve in the next few years. It is my hope that he will address the chronic underinvestment that has dogged the Royal Mail for so long. I suggest that he addresses the vexed problem of low pay attracting the wrong applicants for employment; why are postmen and postwomen paid £80 per week below average pay? He should look at ways in which to give post officer workers the status in the community that they had for so many years, and which many still have. He should make firm recommendations about recruitment and training and the taking up of references before staff are allowed to handle people's correspondence. I have not time to comment on what has happened in recent scams which have left the Post Office with a lot of egg on its face. Above all else, he should recommend that the parties—that is, the employer and the unions—sit down together to plan for the future together. They need to strain every sinew to meet the challenges of competition, liberalisation and to build for the future. The British public and business community deserve nothing less. I beg to move for Papers.

Lord De Mauley: My Lords, I thank and congratulate the noble Lord, Lord Clarke of Hampstead, for initiating this timely debate, which follows the House of Commons Trade and Industry Committee report on Royal Mail after liberalisation. I pay tribute to the management and work force of Royal Mail, who work hard in a difficult industry to provide a service to every citizen of our country. We are not easy to satisfy, and their contributions should not be underestimated. Together they are to be congratulated on, among other achievements, the Mail Centre Efficiency Initiative and on a recent dramatic improvement in industrial relations.
	However, Royal Mail faces a uniquely difficult period. Liberalisation of its market is being forced on it at a time when it is in almost the direst financial situation imaginable. On a net asset base of about £2 billion, it estimates that it has a deficit on its pension fund, according to the committee's report, of £4 billion, or about £70 for every member of our country's population, and that it needs more than £2 billion to modernise its infrastructure to enable it to face its post-liberalisation competitors. Will the Minister give us the Government's views on the estimate regarding the investment required in infrastructure by management, and can he explain the Government's own plans regarding the funding for that?
	As for the pension fund deficit, I mentioned a figure of £4 billion, which was given by Royal Mail's management in evidence to the committee. However, at 31 March 2003, the deficit had been reported as £2.5 billion. Could the Minister explain how such a huge difference arose, incurred over a relatively short period, which it is hard to believe happened only because of a change of accounting standard? Given that it is hard to imagine that management will be able without the shareholders' support to develop a viable plan to eliminate that deficit and to fund the capital investment required, could he also explain the Government's plans on that? We note that dividends have been waived since 1999. It would be interesting to know from the Treasury's perspective to what extent the dividends waived have been replaced by the additional annual tax revenue from the pension fund following removal of ACT for pensions.
	Royal Mail made a loss on operations of £110 million last year. Although it is apparent that this is being turned around, the committee's report refers to suggestions that price control be reopened as a way of increasing profit, to help tackle the pension fund deficit. In that this would presumably mean an increase in the price of a postage stamp, would it not represent commercial suicide in view of liberalisation, which would simply lead to a loss of business to competitors, exacerbated by falling volumes? The current annual funding of £150 million provided by Government is due to end in 2008. What are the Government's intentions to fill that particular gap?
	We are told there is evidence that the approach of liberalisation created an incentive for efficiencies and improvements in quality of service. Doubtless this is true, but surely suggesting that the value of such improvements in the short term will make a material impression on the mountain of funding required to put the business on a sound footing is just a trifle optimistic. The Government's plan appears to be to resolve the current funding crisis over a period of many years out of retained profits, by which time a good number of the employees will presumably be expecting to draw their pensions. Furthermore, competitors will have reaped the advantage that Royal Mail's antiquated sorting technology has given them. In short, it will be too little, too late.
	The final elimination of Royal Mail's monopoly for packages under 50 grams apparently took place at the start of this month, three years earlier than required by the EU directive, as the noble Lord, Lord Clarke, has mentioned. The committee was rightly sceptical about the reasons, saying:
	"we regard Postcomm's choice of dates for the move to full liberalisation in the UK postal services market to be an untimely one".
	We are told that business post is subsidising private post to the tune of 8p for second-class post and 5p for first-class post. Given that a high proportion of business users can reclaim VAT, Royal Mail's VAT exemption, combined with the fact that it is anyway the more lucrative part of the business, might be expected to mean that business post will be the area where competitors focus their attack. Will this result either in price control being lifted dramatically on private post, as Royal Mail is forced to rely on it as an increased proportion of its overall under-50-gram business; or, especially given the concerns I have just expressed, will competition restrict scope for this, with the universal service obligation being jeopardised?
	As the noble Lord mentioned, concerns have been voiced by the magazine industry, first, that Postcomm's recommendation to remove Royal Mail's second-class and magazine delivery service from price control from 1 April will effectively expose the magazine industry to ransom by what is likely to remain, in this area at least, a monopoly nationwide delivery service; and, secondly, that what is termed "pricing in proportion", representing a move from weight-based to size-based pricing, recently approved by Postcomm, may lead to cost increases of up to 50 per cent for some magazine titles, which might not be mitigated by the so-called mitigation scheme put in place by Royal Mail because the thresholds have been set too high. Will the Minister comment on these points?
	The universal service obligation is a vital part of Royal Mail's service to the nation. The latest annual report says that Royal Mail is making losses of over £200 million on nearly 90 per cent of its price-controlled volumes, which it has to provide under the universal service obligation. However, the committee's report says:
	"Royal Mail later confirmed that in 2004/05 profits from the universal service area were in the region of £400 million".
	How are these two statements reconciled?
	The national network of post office branches contains about 14,500 post offices, of which about 8,000 are rural branches. It is widely accepted on all political sides that the network of post offices provides a valuable service to the community, especially in deprived areas where its value is measured in more than mere financial terms. This network has been savagely and, some have suggested, rather thoughtlessly cut. There were over 18,000 post offices as recently as 5 years ago. There are serious concerns about rural closures. Concerns have also been raised by the CWU about the urban closure programme; about the suitability of the companies to whom certain offices, especially in north-west London, will be franchised; and about the transparency of the franchising process as a whole. How can the Minister comfort us that it has been undertaken with due care and attention?
	There are periodically reports of proposals to issue shares to employees. Can the Minister tell us where these plans have got to and what percentage of the equity is being considered for the giveaway? The committee reports that the explanations offered to it were,
	"far from complete and no coherent process for how these shares would be transferred or traded has been given".
	If a plan exists, that would appear to be inappropriately evasive.
	Once again, I thank the noble Lord, Lord Clarke of Hampstead, for initiating this debate and I look forward to the Minister's responses to the points that I and he have raised and to those which other noble Lords will raise.

Lord Cameron of Dillington: My Lords, as has just been mentioned, one of the areas where there are the strongest concerns amongst ordinary people about the future of the Post Office is in rural Britain.
	In many of our villages and market towns, post offices are an essential part of the fabric of the local community. They are seen as a trusted source of advice on, and provision of, a whole range of government services. Apart from anything else they provide crucial access to cash and banking services for those who are financially excluded or for those who still depend on the post office for their benefits or pensions. Furthermore, they produce a significant economic boost to their community. Countryside Agency research has shown that a shop attached to a post office can on average expect to receive a 25 per cent higher turnover as a direct result of the post office being there. Meanwhile, neighbouring shops get a 15 per cent boost to their turnover because of the footfall created by post offices.
	However, a village post office and shop does more than provide vital services for locals. They often represent the only focal point for day-to-day social intercourse within a community. While the church and village hall—if they exist—obviously host specific occasions, these are often narrow in their appeal: the young go to discos, for instance, while the old might go to whist drives. But it is only in the local post office and shop that old Mrs Smith can meet and chat to young Master Jones in an unstructured but secure setting. The fact that old Mrs Smith and young Master Jones might both be without transport and are therefore totally dependent on the post office and its shop also helps bind them together.
	Country people feel very strongly about their post offices. I asked a lot of people at the last countryside march if there was any reason apart from hunting that had brought them to London, and post office closures was the most frequent answer. Indeed, it was soon after this that the Government introduced their £150 million per annum support that is now due to last until 2008. At the same time the Post Office introduced its commitment to prevent avoidable rural post office closures. Unfortunately, this latter commitment is due to lapse in March this year. However, neither of these two lifelines has prevented rural post offices closing, but they have slowed the annual closure rate down from 360 per annum five years ago, to 97 last year. So we should not delude ourselves. For the foreseeable future rural post offices will continue to close and this closure rate will almost certainly accelerate when the £150 million per annum ends in 2008. No one could expect such a large sum to continue after that.
	Postcomm research has found that almost all rural post office branches cost more to run than the revenue they bring in. Those that do not are in the larger towns. However, the benefits to local people in 80 per cent of rural branches are greater than their costs, even if those branches are making a loss for Post Office Ltd. This, of course, means that in 20 per cent of branches—that is, some 1,100 post offices—the benefits to locals do not outweigh the costs of operating them. It is likely that these branches will not survive in the long run unless the local communities can galvanise some local self-help.
	Meanwhile, in the UK, Post Office Ltd is using its window of opportunity and the extra funding it is getting, very well it seems to me. It has created a rural strategy team to help run and measure a whole range of pilot schemes to show others how it is possible to sustain the rural network. For example, it has a "core and outreach" scheme which is running several satellite operations involving a sub-postmaster from a larger village going out to surrounding settlements, for a few hours a week, and offering all the services of the core branch. He can do this by using a village hall, pub or even a church.
	In other instances, mobile post offices have been used. For example, the Cumbria mobile travels around 500 miles a week serving 36 isolated communities. Post offices have also combined with other services to reduce fixed costs. For instance, in Dyfed and Norfolk they have combined with the local police force. In Cornwall, where over 25 per cent of wage earners are self-employed, Post Office Ltd has combined with Business Link to offer business support services along with normal post office services. In the "pub is the hub" initiative you can now find a post office, a village shop and even Internet café facilities and training in pubs. Post offices can also now be found in almost any type of shop, including in one case a fish and chip shop, but also elsewhere in hotels, churches, libraries, tea rooms or even the opticians; and long may it continue.
	In conclusion I would like to make the following points. First, rural post offices fulfil a valuable social and economic role and should continue to receive government support, albeit at a reduced rate, after 2008. It is the most vulnerable members of our communities who will be affected by any future rationalisation, such as older people, those without access to a car, the unemployed and those on a low income. Postcomm research on post office networks abroad showed that many countries find it necessary to adopt special approaches to secure postal and other services in rural areas. Secondly, the current commitment to prevent avoidable rural post office closures is due to lapse in March 2006. I suggest that this should not happen until a strategy for the future of the rural network has been fully developed and publicly consulted on, so that there is a plan to go forward based on sensible criteria. The criteria could be related to population size, distance from other outlets or where particularly vulnerable groups predominate; but we must have a plan before we pull the rug.
	Thirdly, the provision of postal services should continue to be encouraged alongside other services in rural areas, and post office regulations must remain flexible to accommodate that. Government funding and support should continue to encourage a climate for such entrepreneurial activity by giving business rate relief, pump-priming capital grants and, crucially, sponsoring advisers and consultants to help entrepreneurs and rural communities. Communities need to be able to develop the range of services that best suit them. Many successful and long-lasting community post offices already exist, assisted by the Rural Shops Alliance and the Plunkett Foundation, among others. Those organisations will continue to need help.
	Fourthly, it was no surprise to me, looking at the research in other countries, that the main strategy adopted in most of them has been to develop banking and financial services. One of the main problems with rural post offices recently has been the muddled signals given out about the availability of card accounts and other financial services. There was never any real commitment from Government to promote that service. Customers and sub-postmasters were given conflicting signals. Some postmasters were told to tell their clients that card accounts were not available; others were told the opposite. As a result it has not been a success, and a great opportunity has been lost. However, it is not too late. Every UK post office should be able to provide financial services such as bank accounts, bill payment, savings accounts, insurance, business banking, money transfer, bureaux de change and cash machines—and maybe even credit cards, loans and investment services. All those things happen to varying degrees abroad, and there are after all more post offices in our countryside than all the banks and building societies put together. The Government have recognised the importance of the rural post office network, but they need to see it through to the end with that little bit of extra commitment if the money already spent is not to be wasted.

Lord Brookman: My Lords, I echo the thanks of other noble Lords for a further opportunity to discuss the Post Office and to contribute on issues regarding Royal Mail and the Post Office. My background is in heavy industry which, like Royal Mail, has experienced many significant changes over many years. In the steel industry we referred to it as survival.
	As a customer—and that is all I am, a customer—I have nothing but praise for the people who work in both the Royal Mail and the Post Office. I share many of the views expressed by the noble Lord, Lord Cameron of Dillington, about village post offices. I live in a village of some 7,000 people and the post office is a vital and important part of the community. It is efficient, the people are helpful and it provides a service that is second to none. I would really despair at the thought of a possible closure of that village post office.
	We must bear in mind that a debate is going on in the country over an important issue: ordinary people, councillors and planners are extremely concerned about the demise of high street shopping and all the problems that that brings. In our village the postal delivery is first class—brilliant, in fact. Postie Mary is special. She is not the best-paid person but the best you can get. So this is a debate worth having and I very much share the concerns expressed by my noble friend Lord Clarke of Hampstead.
	What security do the employees have regarding future pension arrangements? Can my noble friend the Minister assure me and, more importantly, the employees that current members of the final salary scheme are and will be safeguarded? We all know that pensions are a difficult issue in the country as a whole—difficult for employees. I do not know whether they are quite as difficult for the chairmen and chief executives of companies which get into difficulties. In many cases of companies faced with difficulties the situation is terrible for the employees. Schemes are being closed down. Pensions are being moved into money purchase schemes, as many noble Lords know well. As I understand the situation, the pension deficit in the Post Office, which has been referred to by noble Lords, is both serious and significant.
	Perhaps I may pause here, for again I am advised that for some 12 years until 2001 the main pension scheme had a surplus funding level and, in accordance with the rules, the employer took a contribution holiday, as many other companies do, and therefore paid nothing for many years. I say that to seek fairness and justice for the future, because many companies' employees continued paying their full contributions to their pension scheme.
	Pensions for me and for many other noble Lords here are regarded as "deferred pay". Indeed, what do employers say when they meet for negotiations on annual wage rounds? They reminded me on many occasions, "Don't forget your future pensions, dear friend"—well, they did not call me "dear friend". They would say, "It's not a bad package, you know". So a current cause of concern, among many others, is that if the funding is to come from revenue, even on a staged basis, then reinvestment may well suffer and, of course, low pay—because it is relatively low—will continue to be the norm for Post Office workers. Again, I must point out that that is not the case for the chairman and those around him.
	This is a worrying and difficult period for those who are employed by, and manage, the Post Office. I, for one, support the CWU, their union, which has stated:
	"We support a publicly-owned, publicly-accountable, fully-integrated, national postal service run in the interests of users and not the private postal operators".
	I sincerely hope that the Minister and the Government—my Government—agree with those views.

Lord O'Neill of Clackmannan: My Lords, I join my colleagues in congratulating my noble friend on securing this debate. Indeed, it is welcome that it is he who introduced it, given his long experience of the postal services. However, it is unfortunate that we are probably going to end up debating both postal services and post offices. It might have been better if we had been able to separate the two, and I want to devote most of my time to the postal services.
	Since 1997 the Government have adopted a novel and pragmatic approach. It was imaginative to establish the Royal Mail or Consignia—the names are almost interchangeable but I think that noble Lords know what I am talking about—as a company with the Government as the main shareholder. There were public service requirements, which were going to be overseen by a regulator, and, since then, the Euro directive has been introduced.
	It should also be made clear that it takes a certain level of incompetence by management to run a monopoly at a loss in a capitalist society. That was basically the story of the Post Office. It made surpluses perhaps two or three years out of every four. There may have been some sleight of hand, with a bit taken back by the Treasury, but the fact is that there was a record of doubtful management competence, financial carelessness, a failure to realise assets that were no longer necessary to the business and a failure to invest in the business.
	Not that long ago, there were no machines available in the postal services in Britain to sort A4 envelopes. From the volume of business that we get, we know the number of envelopes that come in that size. No one in the Post Office had woken up to this change in the size of envelopes, in much the same way as they missed out on the opportunity of Internet service providers and, for that matter, emergency or very fast mail delivery services. Even now, the range of products offered by the Royal Mail is woefully narrow. Indeed, if an individual retailer at a post office were to be dependent solely on the services provided by the Royal Mail, he would make virtually no money at all.
	So I think that, on the one hand, we have to strip away a lot of the cosy nonsense that surrounds the Post Office case and, at the same time, recognise that it is a vital part of our economy on which we are dependent for a number of services, both economic and social. At the same time, however, we have to recognise that the Euro directive is something with which we have to live. Liberalisation will be a fact, and it is a question of when it is introduced.
	I take the view that the sooner liberalisation is introduced in a realistic way, the better because, more than anything else, that will be the stimulus to the sclerotic levels of management that still prevail in large parts of our postal services. The fact is that, as my noble friend said, most of the mail will be collected by the postal services at a charge—a charge agreed, albeit reluctantly but none the less agreed, after long negotiations by the Royal Mail. Equally, the last-mile delivery will still be the responsibility of the postal services, and it is the sorting processes in the middle which are the most vulnerable. Those are the ones—the inside jobs, as they used to be known—where, frankly, most needs to be done. It may be argued that foreign companies with deep pockets are able to invest in that area of sorting and activities of that nature and that they might be able to provide cheaper and better postal services.
	The passage of two or three years, which is what we would have saved had the postal directive not been introduced in the way that it was, probably would not have made very much difference because of the glacial speed at which areas of postal management move. They need—to use Corporal Jones's colourful expression—"a touch of the cold steel", and they need it sooner rather than later. I disagree with my colleagues on that, and remember over the years the regulated industries—particularly regulated monopolies—crying "foul" whenever a regulator chose to do something. I well remember the British Gas management behaving in exactly the same way as Mr Leighton and his colleagues when change was introduced at a more rapid speed than was anticipated or which the management felt comfortable with.
	In many respects what we are seeing in the Post Office is what we saw in the other utilities when they were confronted with change. The challenges that the Post Office management will have to address will not be blurred by issues of share ownership and the like. Those are irrelevancies. Let us face it—I return to my earlier point—it takes a particular type of skill to have a monopoly, run it at a loss and have staff who are poorly paid. One of the major challenges is to increase the pay and improve the conditions of postal workers, and we must improve their pension arrangements.
	A publicly owned Post Office can enjoy a certain privileged position on pensions. I hope that we can move towards enhancing the depleted funds of the pension scheme fairly quickly. While in some parts of the country far too many postal jobs are casual, in the area that I was privileged to represent in another place, postal jobs were important jobs. They were comparatively well paid and seen as jobs for life. Even though the wages were not brilliant—the area that I represented had fairly low levels of pay—there was always the promise of the index-linked final salary pension scheme that kept many people in the job and attracted many of the loyal workers who put in 30 to 40 years of service. I am referring to the town of Alloa, which is about 40 miles from Edinburgh. In Edinburgh turnover in the postal service is very high because unemployment is very low.
	We have challenges to meet. It is not a seamless labour market across the whole of the postal service, but it is a seamless service in so far as we have universal obligations of service and price. I should like to think that the task is not beyond the capabilities of the management and unions. It is amazing what has been achieved in a relatively short period in a number of areas, which gives me a degree of confidence and optimism, which some of my colleagues have yet to display. I hope that the Minister can reassure us when he responds to the debate.

Lord Brooke of Alverthorpe: My Lords, I am grateful to my noble friend Lord Clarke of Hampstead for sponsoring the debate. This is the first of two debates today on trying to improve public services. The issues are about change and competition, but this debate has a strong European dimension. I shall follow a vein similar to that of the noble Lord, Lord O'Neill, and I share a good number of the points that he made. The European Union has been opening up postal services to competition to improve European postal services and develop single markets as far back as the mid-1990s. We cannot ignore that. We must come to terms with it and recognise that the current directives require even more changes and competition in the future.
	Each member state is tackling this in its own way. The Swedish postal system has been fully privatised since the mid-1990s. Anyone who has been to Sweden will know that it is a typical Scandinavian operation. It is efficient, clean and customer oriented, but highly expensive. The Finns, the Dutch and the Germans have followed with variations on the privatisation theme. At the other end of the spectrum is the French model, now with question marks over its sustainability in the longer term. It is interesting that they are pushing to wait until 2009 before they get around to introducing the current directives.
	There is also a big question mark over what will happen to the new accession countries' postal services over the coming years. I suspect that the structure and ownership of the enlarged European Union postal services will look quite different in 10 to 15 years' time, especially with the increasing pace of technological change.
	I strongly support the efforts of the noble Lord, Lord Clarke of Hampstead, to get the Government to commit to a strategic policy for the Royal Mail that will stand the test of time. I trust that it will take fully into account the realities of what is happening in Europe, the regulator's existence and their role as part of that process.
	As we enter this review period, will the Minister throw a little more light on to the role of Sir George Bain as adviser to the Secretary of State for Trade and Industry? As I understand it, he will not be producing reports, or a final report for the Secretary of State, to be published. How will his findings emerge? How will we get access to what he is analysing and recommending? When is his task likely to be finished?
	My knowledge of the postal services is minimal compared to many of today's contributors—I look particularly at the noble Lord, Lord Dearing. My deeper interest was first stimulated through the European Union legislative scrutiny in this House. In 2000, we looked at the proposed EU directives for further liberalisation, and at a number of European postal services, particularly our own. We found, much to our regret, that UK services had deteriorated dramatically since last looked at by this House in 1996. Indeed, Post Office management itself accepted that it was widely missing its performance targets, that millions of items of its customers' business were going astray, and that it was defending a second postal delivery at midday, when most recipients had gone to work hours earlier. That, of course, has subsequently changed. There have been many other substantial changes, flowing from the Postal Services Act 2000 in particular.
	It cannot be denied that the new management team's renewal plan, while it has been controversial, has financially turned the business around, and greatly improved service performance from its level at the turn of the millennium. Nevertheless, the Post Office faces a number of serious challenges. Previous speakers have enumerated most of them, so I will not repeat them. However, notwithstanding recent improvements, there will be a continuing and major challenge facing us on industrial relations. Like the noble Lord, Lord Clarke of Hampstead, I pay tribute to my noble friend Lord Sawyer for his tireless efforts in bringing some harmony and partnership into the fraught and unstable relationships which existed two or three years ago.
	All of us here want to see the postal services not only overcome the current challenges facing them, but to flourish and grow on a sustainable basis; not just at home in the UK, but into Europe. Make no mistake, European competitors certainly have designs and ambitions for growth in the UK, which we should not ignore. That means efforts to build better industrial relations and trust must increase if we are to be successful. It can be done.
	I depart marginally from the main thrust of the debate, and speak as a partnership director—a non-executive director—on the board of a public/private partnership, NATS Ltd. I invite the Secretary of State, Sir George Bain, the postal unions and Royal Mail senior management to visit NATS, and see how our organisation is transforming itself and its industrial relations.
	The PPP was formed in 2001, after a vigorous campaign of opposition from the unions in the industry, fully supported by all their members. The union density then was extraordinarily high—over 90 per cent—and I am happy to report that it is still at that level. The Government own the majority of the shares in the company, which is where I will pick up the point on which there may be disagreement with the noble Lord, Lord O'Neill. The shares are non-marketable and the staff were offered a 5 per cent stake, which is held in a tax-free trust fund. At present, the shares can be cashed only when the employee retires or resigns. The unions originally opposed the share concept, but virtually all staff took the opportunity of getting their hands on them.
	For the first two years after the PPP was formed, industrial relations were, without question, fraught and were not helped by the airline industry's near-collapse after 9/11 in the USA. But bit by bit, faced by very similar challenges to those of the postal services, confidence has been built up between all the parties. Safety continues to be paramount for NATS. The average delay per flight is now lower, notwithstanding a near 5 per cent per annum increase in air traffic. NATS's charges to the airlines have not gone up; they have gone down and are to be further reduced. Previous losses have been turned into modest profits in 2005, the net debt is being reduced and the first small dividend was declared last year. While non-marketable, the shares are independently revalued for Inland Revenue purposes twice a year. They have been on an upward swing from more than 80p to more than 110p. NATS is also in the early stages of implementing a £1 billion investment programme to upgrade the ageing technology infrastructure, long starved of funds by previous governments of all persuasions. For the first time ever, the unions are entering into a three-year pay agreement, a generous one that they never had under their former employers, the government and the CAA. It is my guess that fairly soon they will be seeking a greater percentage of shares for the staff. For the unions and for the staff that will mean greater involvement, more commitment, a stronger voice in the organisation and more influence over their own futures.
	I am not advocating that one size fits all structures, nor am I claiming that all is perfect in NATS—far from it—but I do suggest that that reasonably successful model should be examined. There is a structure for dealing with non-marketable shares and those elements could be looked at and might be worth cherry picking, in the phrase of the noble Lord, Lord Clarke. If we were to couple that with the saving proposal on how we dealt with the dividends with which he opened his speech, maybe we could then find an opportunity whereby employees of the Post Office and its management could use that element to try to persuade building societies that Post Office employees should have an opportunity to get on the housing ladder, as they are well below the level of house ownership in the UK. That is the kind of challenge that the industrial relations set-up should be facing, and it would give real, lasting benefits for the future.

Lord Dearing: My Lords, I am grateful to the noble Lord, Lord Clarke of Hampstead, for initiating this debate and for giving it a focus on the public interest. That is helpful to me because, as a former chairman of the Post Office, I draw a Post Office pension and I have to declare an interest; but I had better concentrate on the public interest, rather than my own. I shall focus on two points; first, how we are going to earn our living in the world and how the Royal Mail can contribute to that; and, secondly, the social interest of having a genuine, national, pervasive network of post offices.
	On earning our living in the world, I am not making this point in any political way, but the last year in which we had a surplus on our balance of payments on trade and services was 1997. Every year since then, there has been a deficit, and every year the deficit has increased. In 2004—the latest year for which I have figures—it was £40 billion. Looking ahead, I worry. China and India have only just begun to take their place in world markets and North Sea oil will not last for ever. I worry for our future and any opportunity to develop a world-class industry or service that can contribute to earning our living is welcome. I have little doubt that that challenges us to increase our efficiency and that what the Government had in mind in going down the liberalisation route was to give the spur of competition to the Royal Mail group to increase its efficiency. I note that, in providing this spur, they are acting two years in advance of Germany and three years in advance of what is likely to happen in France, Italy and Spain.
	In doing that, we are opening up our market and giving a powerful invitation to others to come and seek to take their share of the biggest cherry that has been opened up in the mail world. I look at the competitors and their financial strength compared with our position. I turn to Deutsche Post. Of its financial strength, a financial commentator said words to the effect that it had cash burning a hole in its pocket. It spent £3.4 billion on acquiring the British company Exel in a year in which it had already spent £1 billion on another acquisition. I have looked at its balance sheet; it is awesome. I have no doubt that that balance sheet has been assisted by its ability to charge two to three times the price of a first or second class letter in this country. On its mail business, it seems to be earning the remarkably good return of 15 per cent before interest and tax. That is very nice if you can get it. No wonder it has the financial strength that is behind it as it comes into our market. Similarly, the Dutch are powerfully equipped. My concern is not that there has been market liberalisation, but that the Royal Mail can compete fairly and strongly with the other companies that are quickly coming into the market. I understand that last year direct stream access achieved a level four times that which Postcomm was predicting when it made its first consultation report. It is happening.
	The Royal Mail's problem is that it has to increase its efficiency, but to do that it needs investment. It is massively underinvested compared with the Dutch and the Germans. That is reflected in its efficiency. It is a handicap. But with a balance sheet with a deficiency of £2 billion, where will the cash come from to do that and to develop an overseas business? Postcomm sees a glide path to eliminating the deficiency over the next four or five years. But the Royal Mail Group board is saying that action is needed now and there are formidable words to shareholders in the half-yearly account on its decision to continue trading, based on the assumption that the Government will address the balance sheet issue. It matters to us as a nation that we have an efficient business because overseas companies will contribute to the efficiency of the market, but their profits will be repatriated and that will not help our balance of payments problem.
	I turn to the Royal Mail's overseas business. It has one: General Logistics Systems. It is not much talked about, but it has shown that, given a fair due, the Royal Mail can compete and earn money. My reading of its half-year accounts is that this year this overseas business will have a turnover of around £1 billion and a profit of between £80 million and £100 million. If we are concerned about earning our living in the world, the Royal Mail should be in a position to invest in that business and to engage in other partnerships to develop a real success—that nobody knows about. I believe that there is a workforce and a top management that can deliver. There is an issue about the Government being alongside the Royal Mail in ensuring that it has a balance sheet that enables it to compete fairly.
	I turn to the Post Office. I agree with the noble Lord, Lord O'Neill, that we need two debates rather than one. The noble Lord, Lord Cameron, has spoken very informatively on the Post Office and I would like to see a debate on it. There is a major public interest in having a national post office network. I shall make three points.
	First, 40 per cent of the business went when the DWP changed its policy on the payment of benefits. There is one big bit of business left; it is called the Post Office Card Accounts, which people can use to draw on their social security benefits, if they so choose. Reference has been made to muddled messages to post offices and people about that account. I hear messages about how difficult it can be to open such an account. If the DWP ends those accounts, that will be another nail in the coffin of the post office network. It will be an added threat to the viability of the 7,000 post offices which depend on that £150 million of business. The loss of that business also means a reduced footfall in the shop and another blow to the future of a truly national network of post offices. I should like the Government to think very carefully and give some assurance that there will be a continuation of this form of payment of social security. People want it and I would say to the Government that we are here to serve the public.
	Secondly, reference has been made to the payment of £150 million per year by the Government to enable these offices to continue. Perhaps I may say that in spite of that post offices make a loss of £100 million a year. It seems odd to me that the Government should be finding that £150 million by withdrawing shareholder money from the balance sheet, especially now that we know there is a £2 billion deficit. I wonder what would be said of a private sector company that did that. I think the Government need to recognise that this is a payment for a social purpose and that it should be funded by the state.
	My third point picks up the reference to the review that is taking place on the future of the network. I understand that the Royal Mail has put proposals—I have not seen them—to the Government. I urge the Government to realise that there is a major social issue here, which is for them every bit as much as it is for the Royal Mail. I know that the Royal Mail has been very imaginative over the past two or three years in developing its services. It needs the Government to come forward with policies in the public interest to enable it to continue to serve. I hope that we shall have a debate on that before long.
	To conclude, we have a business with workers and management who can deliver. The question is: will the Government give them the tools to do the job?

Lord McKenzie of Luton: My Lords, I respectfully remind the House that this is a time-limited debate. We are running over and we have virtually no margin left.

Lord Sawyer: My Lords, I thank my noble friend Lord Clarke of Hampstead for initiating this debate. This is a good time to have it and my noble friend's passion and wisdom on the subject is something that we should all be thankful for.
	I was involved approximately five years ago in preparing a report on industrial relations in the Royal Mail and have been involved intermittently since that time. In 2000 there were real problems with unofficial strikes and disputes, which sapped public confidence and lost huge amounts of revenue. The days lost through strikes peaked at 85,000 in 2003; in 2005 it was 4,300 days. Therefore, there was a drop of 95 per cent. The question is: have industrial relations improved? Well, there are some grounds for optimism outside those statistics. First, the Royal Mail received favourable publicity in recent months for its 2 per cent reduction in sickness absence, which is good. That has apparently saved the company millions of pounds, which it should. The company's own regular employee surveys show that employees' assessment of their own management has improved. Furthermore, the company's safety performance seems at last to have turned a corner for the better. Although much remains to be done on these industries, they are all moving in the right direction. They are below many of the other sectors that we would be involved in, but they are going in the right direction.
	I can certainly inform the House that, since we wrote our initial report in 2000, there have been times when management and unions have worked together in a more effective way. That has produced benefits. One particular example is worth mentioning. The Royal Mail was investigated by the Equal Opportunities Commission a few years ago, and the issue of bullying and harassment at work has been jointly recognised and tackled by the Royal Mail and the unions. There have been some improvements to date on reported incidents. To help eliminate this problem there has been encouragement for the establishment of local groups to tackle these and related issues by members of the workforce, the unions and the Royal Mail working together on the issues in their locality. These groups are called dignity and respect at work groups, which simply would not have been able to operate in the environment and culture that existed within the Royal Mail a few years ago.
	That is not a unique example. A joint safety steering group has been established to try to form a consensus on the practical measures needed on how to make improvements in safety performance that will last. Furthermore, and perhaps most importantly, in the past few months, the national officers of the CWU (the main union) and senior members of the Royal Mail's management team have jointly reviewed the strategic plans that the business feels it must address with the arrival of the competition that has been talked about in this debate. Major changes in investment and working practices will have to be faced by all the parties. To date, this has been done in a constructive and sensitive manner that again would not have been possible a few years ago. As the Government are the sole shareholder in the Royal Mail, I believe that it is proper to ask the Government how they might help to ensure that the Royal Mail and the unions can fulfil their obligations to the rest of us by helping to promote good industrial relations.
	I mentioned a moment ago that discussions between the Royal Mail and the CWU were taking place around the strategic plans. There would be obvious and great public benefit if these discussions bore real fruit and changed the culture of industrial relations at the Royal Mail. But, obviously, there are many difficult operational and employment changes to be contemplated and implemented on which it will be difficult enough to come to a common conclusion. In particular, the major union, the CWU, will need to adapt to change and refocus what its role should be so that it can effectively influence—and not just challenge—the Royal Mail's thinking on these sorts of issues.
	Furthermore, both the trade union and management leadership are learning, but need to continue learning, about new behaviours to take employees with them in this to benefit all who want the Royal Mail to be successful in the new competitive environment that we are now in. This amounts to big change from the past for both parties. Both need help and encouragement. The union needs help and encouragement and the people who lead the union need to be supported. The Government need to understand how difficult it is for unions sometimes to make change in these kinds of environments. There is always a fear—I think you hear it around the table—that both sides will revert to type and to behaviours of the past. We have to avoid that. The Government should place their emphasis not so much on the kind of headlines and debates we read about, but how they might genuinely understand what is going on in the Royal Mail and help and support the changes that are taking place. That would be helpful.
	Indeed, the Government could help both sides by avoiding what I would call unresolved distractions. Obviously, there are issues of pensions deficits and capital investment that need to be resolved, but there are other issues; for example, that of employee ownership. While it remains unresolved apparently—we do not know what, if anything, is really being suggested—the ability to reach any kind of consensus on this issue detracts from the positive things that we try to do in the industrial relations field. It certainly takes the attention of the union leaders away from the issues that the union ought to be concentrating on.
	I have only a brief word to say on ownership. It is informed by the review carried out by Job Ownership Limited, the only independent, and, thus in my mind, objective review of this issue—Royal Mail employee ownership—that has been undertaken. The report from Job Ownership Limited was published last year and is interesting and informative. I shall quote only one paragraph:
	"An employee stakeholding—whether in the form of individual or collective ownership—won't be enough on its own to create the harmonious, productive industrial relations and employee engagement that the main stakeholders all want to achieve. Research evidence shows that this impact is only achieved when a meaningful equity share is coupled"—
	I emphasise "coupled"—
	"with far-reaching employee involvement and participation. Successful implementation of ownership restructuring will require an intensive, long-term communication, awareness and education programme among staff and management".
	If we could learn from the suggestion made by my noble friend Lord Brooke of Alverthorpe, that is the sort of thing that we should be emphasising. It is about employee involvement, participation, communication and awareness. It is not about political rhetoric or newspaper headlines; it is about something much deeper and more fundamental than that. I hope that the Government will help the parties to concentrate on that, because that is what is needed.
	Many issues are of public interest—the post office network, the universal service obligation, value for money pricing—but my main interest in participating in this debate is not to discuss any of those things but to help the House to understand that as we enter the world of postal liberalisation, some progress has been made on industrial relations at the Royal Mail that needs to be sustained and nurtured in the interests of all members of the public and business customers. If the Government can support the real, concrete developments that are occurring there on the industrial relations agenda, they will be doing us all a service.

Lord Hoyle: My Lords, I must first declare an interest. I am a member of Amicus, which represents the Royal Mail managers. I must tell my noble friend Lord Clarke of Hampstead how indebted we are to him for initiating this debate. It involves an awful lot of expertise. I follow my noble friend Lord Sawyer, who has been involved in industrial relations and played a vital role in developing them. Those who speak after me have knowledge of the Post Office—no one can have more knowledge than the noble Lord, Lord Dearing. We met many times when I was on the Select Committee in the other place. I only wish that some of the things that were said then had been implemented and that the Government had not been quite so greedy in taking back many of the Post Office's profits, instead of using them for investment. The Royal Mail would then be in a better position to compete in the liberalisation that is coming today. But we are not at that stage.
	I was also interested to hear from my noble friend Lord Brooke about NATS, because the two of us, along with others in the House, played a major role in setting up a non-profit operating company. I am pleased that it is working so well and that it is now gaining the confidence of the employees. I am sure that my noble friend has had a large part to play in that.
	That does not get us away from the problems that Royal Mail faces. It is right that today we have been concentrating on the fact that while competitors are coming into the market, the universal service obligation rests with the Royal Mail. We must ensure that the universal service is protected and continues. It is right to refer to places where liberalisation and privatisation have taken place. Sweden is one, but a very expensive service operates there. Another is New Zealand, which is a far more recent example, but which no one could say has been a complete success by any means.
	As was said by the Select Committee in its report in December, to ask the Royal Mail to prepare for competition at a time of great uncertainty does not seem common sense, to say the least. What are we talking about? We are going for liberalisation when there has been underinvestment and the Royal Mail faces uncertainty about stamp increases and the position of the pension fund, as has been referred to, which of course bothers all employees. They are bothered by the huge hole: not only how it has come about but what will be done to remedy it in future. The Government ought to make a commitment to get the pension fund back on a more equitable footing.
	Why have we done this when, as has been said, other countries have until 2009 to do it? What are we doing to try to get liberalisation in other countries brought forward? That would create a more equal footing for the Royal Mail to compete on. That is essential. We know that it is coming—as has been said, we cannot resist it—but we know that 2009 is a long way away for other countries. We are suffering the consequences now. Companies such as La Poste or Deutsche Post can now compete in this country, with the terrible effect that that may have on our universal service. It is wrong that we allow that to happen now, while they can shelter behind their frontiers with closed walls to our going into their markets. To have a level playing field, we should press for an earlier liberalisation of the whole of Europe so that we can have fair competition.
	One concern in the Post Office in the past has been that when there have been rises in the price of stamps, they have often been far too late and the benefits have not been taken. I know that discussion has been taking place with Postcomm about whether there should be easier ways or an agreed formula for rises, rather than their being too little too late so that we start from behind.
	Are the Government still contemplating—I hope not—putting VAT on postal services? That would be extremely unfair to the ordinary user, especially people on low incomes who need low stamp charges so that they can afford to send post. Are we going down that route—it does help those who are registered for VAT, but it does not help the ordinary customer? I hope that we will not follow that line.
	On share options, especially as the Government have said that they will not privatise, I think that it would be far better to consider profit sharing. However, if we are going down the route of share options, what discussions has the Minister had with the Royal Mail and what is the Government's thinking? It has not been clear how that would come about, where they would be transferred from or how they would be traded. Would they be on the open market, which could lead to a form of privatisation; or would they remain within the company, so that the employee would get the benefit if he retired or left the company? I understand from my noble friend Lord Brooke that that happens in the case of NATS. We need more information on that and I hope that the Minister will be able to help us.
	What is happening with Postcomm? It is being asked stringently to monitor and set standards for private operators. What is being done about that? Is that going ahead?
	Finally, if we do not follow that policy, we will have creeping privatisation, destroy a service that is respected by most people and destroy a loyal employee base.

Lord Young of Norwood Green: My Lords, I thank my noble friend Lord Clarke for initiating this debate. Like him, I, too, declare an interest. I joined the GPO, as it was called in those days, in 1958 as a telecom apprentice, which is most of my background. But I can remember on one or two occasions sitting at the negotiating table opposite the noble Lord, Lord Dearing. So there is a strange sense of déjà vu—"all over again", as a football commentator once said. I also was the joint general secretary, together with a certain Mr Johnson who now is in charge of the Department of Trade and Industry. This is an interesting debate for me, but it is very important for the country.
	Royal Mail is now entering the uncharted waters of a new, very challenging and competitive environment earlier than most of Europe, as we have heard many times in this debate. One might argue with my noble friend Lord O'Neill—he has come back now—about the nature of Royal Mail management. He accused it of being sclerotic: I hope that it does not have a fatal heart attack, although probably it needs to improve. You could argue about how full or how empty the glass is, but you cannot deny that over the past few years there has been a turnaround from a £1 million per day loss to a £537 million profit in 2004, which took place against a backdrop of 33,000 fewer workers. As my noble friend Lord Sawyer reminded us, change has taken place. There have been improvements, which we should acknowledge.
	I listened carefully to my noble friend Lord O'Neill who talked about welcoming liberalisation and a realistic introduction, which is important. It needs to be realistic. There is a crucial debate between Postcomm, which has made an assessment of increases in the price of a stamp over the next few years and how much productivity achievement is possible—I do not know which is right—and the Post Office, which says that the price of a first-class stamp should increase from 30p to 39p over the next four years, and it still would be one of the lowest prices in Europe. I ask the Minister to look at that because it is part of the key to more investment.
	The Post Office faces huge challenges. We have to resolve the pension deficit. The point has been made that even when looking at the full spectrum of Post Office workers, they are not necessarily the highest paid workers in the country by any means. Certainly, the final salary pension scheme was an attractive part of that package and needs to be sustained. One way or another, the Government, with the Post Office, have to find the solution to that problem.
	As has already been said, in this competitive environment we face big challenges, which are not theoretical. There is a challenge in competition from Deutsche Post and TNT, which are serious competitors moving into this marketplace. As the noble Lord, Lord Dearing, graphically described, they are very well placed to do it. We need huge investment. It is sad that the Post Office now talks about the need to invest £2 billion. You might ask why that was not done many years ago and why it is so late in the day. The fact and the reality is that that has to be done. Ageing equipment has to be replaced through an investment in new technology. The Post Office has to fully engage all staff in the business in the next round of modernisation.
	I agree with the noble Lord, Lord Cameron, and the noble Lord, Lord Dearing, who referred to the importance of sub-post offices and crown offices, and made the point that we probably need a debate on that. In relation to the offices, the integrity of mail is perhaps something that we tend to take for granted until it breaks down. Recently, in north London, there was a case of a Crown office being disposed of to a private company, which took a while to investigate. The private company had been registered for about only two weeks and had assets of about £2. Does the Minister feel that that is a satisfactory situation?
	Just before Christmas, the management—if you could call it that—of an unlicensed company, Mail Logistics, made £2 million from just dumping mail, operating in an area which is completely unlicensed and unchecked by Postcomm. The directors were gaoled. I notice that they cannot be company directors for only one year, which seems a marginal punishment given the amount of mail they dumped and the millions of pounds that were involved.
	I want to comment on the postal service as a whole. I remember a song many years ago by a Canadian singer, Joni Mitchell, with the words,
	"you don't know what you've got
	Till it's gone".
	I sometimes think that that is the same for the Post Office and the universal service. We have a stupendous asset, which is the envy, probably, of the rest of the world. We have to be careful that we do not put it at risk. Some people might say that it is already at risk. So this next period is vital. I agree with my noble friend Lord Sawyer on the need to build a partnership approach and a new era in industrial relations in the Post Office. It has improved and it needs to improve further if it is to surmount the challenge of competition and new technology.
	I do not know the perfect way forward. There appear to be two schemes on offer. My noble friend Lord Clarke informed us about profit sharing and my noble friend Lord Brooke told us about the advantages of the employee share ownership scheme. I agree with my noble friend Lord Sawyer that uncertainty does not help and is a distraction. There probably is not a perfect solution, but I concur with my noble friend Lord Clarke that the profit sharing and productivity scheme could be an alternative way forward. But the Government should encourage, with the Royal Mail, a consensus solution. The success of Royal Mail needs the partnership approach. It also needs a Government who are prepared to recognise the size of the challenge and, if necessary, to direct Postcomm.

Baroness Prosser: My Lords, I, too, thank my noble friend Lord Clarke for setting down this subject for debate. Like others, I preface my comments with a declaration of interest. I am a non-executive director of Royal Mail Holdings board. Royal Mail Holdings is the parent company of, among others, Royal Mail letters, Parcelforce Worldwide, Post Office Ltd and General Logistics Systems, which is the Royal Mail's very successful European parcels business.
	I should like to set out for your Lordships some of the issues which face Royal Mail and some of the ways in which these issues are being tackled. It is common knowledge to Members of this House—it has been mentioned already—that Royal Mail has gone from, in 2002, losing £1 million per day to, in 2005, recording a profit of £537 million. During that time, quality-of-service levels have improved dramatically with around 94 per cent of first-class mail arriving on the day after posting. Changes to logistics and transportation arrangements and the move to single-day delivery have bedded down. Our people have been rewarded for the extra effort that is demanded of them: the working week has decreased from six to five days and, in 2005, every employee received a share-in-success payment of £1,074. A total of £218 million was paid out by the group, making it one of the largest profit-share payments in UK corporate history.
	The use by Royal Mail of temporary and casual staff has reduced dramatically. That action, together with our entitlement, which we vigorously pursue, to conduct criminal record checks on all job applicants enables us to have confidence in the maintenance of the mail's integrity. Industrial relations have improved with industrial action at its lowest for many years. I join with others in thanking my noble friend Lord Sawyer for his sterling and patient efforts in that regard.
	However, significant challenges remain. We are constrained by the regulator while at the same time we face free market competition. We have a history of years of under investment in machinery and infrastructure, Post Office Limited is financially a loss-making business, and our pension fund account deficit at £4 billion almost equals the annual income of a small nation. These are big and important issues which require careful and learned consideration if we are to maintain a public mail service with a high-quality, secure and reliable reputation. I will take the issues one at a time.
	On 1 January 2006 the market was opened up to competition. The regulator lays upon us a duty to provide a universal service: deliveries to everyone, everywhere, every day. We heartily agree with the universal service obligation, but do not believe it should include as it does now some bulk mail services which are available only to business customers. Price rises are controlled by the regulator. Jolly good, some will say. But to put it in context, posting a letter in the UK is cheaper than most of the rest of Europe. In Italy, for example, it would cost the equivalent of £1.11. But prices should more nearly reflect costs and currently the only profit made from letters comes from business and bulk mail. If we are to have an even chance in the open market, we must invest and modernise. At the moment Royal Mail sorts only around 50 per cent of its mail automatically, as against 90 per cent by our competitors. We are looking at ways of electronically tagging the mail so that if something goes missing, we will know exactly where from. We have calculated that £2.2 billion of investment is required if we are to remain not only competitive, but also commercially viable in a fully liberalised market.
	Now then, what about Post Office Limited? A great deal of heat is generated whenever the problems of the Post Office are raised—understandably so. For many people the Post Office has been a link to their income, their friends and neighbours, and a place seen as supportive and helpful. Following the loss of the benefits payments, business managers and employees alike have worked enormously hard to bring in new business. We are pushing on financial products, some of which are proving more successful than others. But the competition from high street banks not constrained by the requirement to support such a large branch network is very fierce. Post Office Limited currently has 14,402 branches while our competitors range between supporting 600 and 2,000.
	Government actions threaten us on two fronts. The first is their proposal to set up 70 high street offices to vet and interview applicants for passports. This would dig into the £12 million net contribution this business currently brings in. Secondly, the Department for Work and Pensions has notified us that the current Post Office account card will cease when the contract ends in 2010-11. It is simply not possible to maintain the service politically demanded while at the same time being deprived of the wherewithal to underwrite the cost of that service.
	Finally, while I am at the doom-and-gloom end of the subject, we have the pension account deficit. Our profitable period running up to 2005 enabled us to make a significant contribution to the pension fund, but the sums of money are so huge and the historical background so long that a political solution is required here. We do not want to close the scheme as so many others have done, but the figures speak for themselves and something has to give.
	Despite these major challenges, I and my fellow board members remain upbeat about the future. Moving the company from an old-fashioned command and control style to one which is fit for 21st-century purpose is more than possible and is an exciting prospect. Indeed, from the point of view of the UK public it is essential that we meet this challenge. However, such a cultural shift will come about only with the commitment of the workforce—managers and workers alike. More training for all our people is essential, as is the creation of an atmosphere where everyone feels part of the action and where everyone feels respected and valued. We need to encourage more flexible patterns of working and to recognise the diverse needs of others. Part-time working must not be viewed as a less than full-time commitment and such opportunities would increase the participation of women who may have other responsibilities.
	Such modernisation of the infrastructure and working relationships is essential to the future of Royal Mail. The sums of money required to set the ship on a steady course are anything but small, and we do not underestimate the difficulties. But we cannot stay as we are and thrive. New financial arrangements must be made which will enable the collective experience and commitment of the board to take the company forward.

Lord Christopher: My Lords, I am sure everyone is glad that my noble and long-time personal friend Lord Clarke has brought forward this debate. It was not my original intention to speak but, as my noble friend Lady Pitkeathley who is currently on the Woolsack will confirm since we all share an office, he talks almost as much about the Post Office as he does about Arsenal Football Club every week. Nothing happens that we do not hear about.
	What really disturbs me about what is happening was set out in an article that appeared in the Financial Times a little before Christmas, to which I shall return. I am even more concerned now, having listened to the remarks of the noble Lord, Lord Dearing. He really has put his finger on issues which have not been touched at all—I do not mean just here, but anywhere. We seem to be interpreting "liberalisation" in a way which, in my opinion, lacks any clear indication of what is the goal we are after. I simply do not know where it is we hope that we are going. The way we are interpreting liberalisation and a universal service suggests that they are in fact incompatible.
	I have read the last Postcomm report. Unusually, while it gives the period it covers, the document is not dated so we do not know when it was issued and it does not give its terms of reference. Whether what it says is in accord with the short version given to the House by my noble friend Lord Clarke, I am not sure, but to me it reads like a very odd document. The virtue is competition, competition, competition. A few more doses of it and we will all live in a postal paradise. That is what the report says. To be frank, I do not believe it. What first sprang to my mind was the bizarre regulation-directed performance on liberalising the telephone directory service. We ended up with a dozen or more companies, all giving us directory inquiries less well and more expensively.
	I find it hard to believe that we can deliver a modern postal service as cheaply as we are today and I shall indicate one or two reasons for that. While we should not attack competition or the private sector, we need to think about how we use those in the operations we are seeking to liberalise, to use the current word. We assume that we use words like "privatisation" and "competition" on the basis that everyone understands them. They have a common meaning and purpose, so we can just go ahead and use them. But it is not like that. Perhaps it is a ludicrous comparison, but while you can have competition in having your hair cut, I do not see how you can have competition in providing probation services. They are totally different operations. If we want the probation service to work better, we have to say, "We want to do this in a different way. We want it to be more efficient and less costly". What we cannot say is that we will get Tesco to do it for us.
	I am far from certain that Postcomm has thought this through. There is no indication of where it wants to get us to. Here we are with pretty much the cheapest service in Europe—the first in the field. What was the reason for the rush into liberalisation? It has not been explained. Its own reported survey shows that nine out of 10 users said the Post Office was important to people, and 96 per cent said that they trusted the Post Office. Where on earth did the pressure come from? We are taking some very serious risks and we are even being foolhardy.
	I do not wish to be patronising but there is merit in some of the arguments of my noble friend Lord O'Neill. Management could not have been the only answer—it was not the only answer—to the position the Post Office was in. We would not have such a cheap postal service if that was the case. In the current situation, why is it that 14 people want a bit of the action? If the Post Office had had the capital to make the investments to produce the economies of scale which presumably these other companies are able to make, 14 people would not be looking for the work. They are looking for it because it is a cash cow and they are able to get it on the cheap. There are some fairly aggressive dogs out there.
	Perhaps I can read three short extracts from the Financial Times article of 29 December. The first is a quotation from Nick Wells, the chief executive of TNT Mail. He said:
	"The UK is a very important market for us. Mail volumes are in decline in Holland and we've got to expand internationally. The UK is the second largest market in Europe, it's very strategically important for us; it's critical that we're successful in it".
	The article goes on to say—and perhaps my noble friend Lord O'Neill did not see this—that:
	"TNT intends to take on Royal Mail head-on with a new end-to-end service. 'We do have a stated ambition to create an alternative final . . . delivery'"
	service. So much for "universal" if it does so, but I doubt that he is talking about Brixton, the Welsh valleys, the Scottish Highlands or rural East Anglia. That means that the service will effectively have to be subsidised by the Post Office.
	Alex Batchelor, the Royal Mail's director of marketing, said:
	"Does bypass [end-to-end delivery] potentially pose a much more dangerous risk longer term than access? Answer, yes".
	None of this is being dealt with at all and I hope that the Government will begin to address it. I shall pose one or two questions to the Minister later.
	I think that the noble Lord, Lord Hoyle, mentioned the question of VAT. This is an extraordinary situation. They want a level playing field on VAT. They say that if it is 5 per cent for each, it will come out with no consequence. But that is 1.5p off the present stamp and nearly 2p off the proposed new one. What an extraordinary way to produce a more valuable consumer service.
	Perhaps I may ask my noble friend one or two questions. What authority do the Government have in directing what Postcomm is doing? Is it so independent that it can do anything, or have we got some control? Are the Government content with the way that Postcomm is performing and the outcomes? What is the ultimate goal that we hope to see? Do the voters know what that goal is and do they know what is happening from the 1st of this month? It may not lose an election, but the Post Office will affect votes at the election.

Lord Razzall: My Lords, I join other speakers in thanking the noble Lord, Lord Clarke of Hampstead, for introducing this important debate. Perhaps I can start by reminding your Lordships what his Motion actually says. It is intended,
	"To call attention to the case for a Government policy towards the Royal Mail which best reflects the national interest in all respects".
	Implicit in what a number of noble Lords have said is that over the past 20 years or so governments of both political persuasions have not had a policy towards the Royal Mail which best reflects the national interest in all respects. Indeed, some might say that they have not had one that reflects the national interest in virtually any respect.
	It would probably be common ground historically—taking the Post Office itself first—that there has been a significant failure by governments of both persuasions to invest in the Post Office network, which has resulted in the closure of more than 7,000 branches. There are considerable fears that this will lead to further closures of both rural sub-post offices and urban post offices, as a number of noble Lords have mentioned. There is little doubt that the Royal Mail has been starved of significant investment, which has had serious consequences for its ability to compete effectively.
	I know the Minister will guarantee the universal service obligation, but there are fears, as a result of this lack of investment, whether the Royal Mail under the current structure has the long-term ability to deliver mail to every household and business at uniform prices. There is considerable concern about that.
	A number of noble Lords have touched on the fairly grim economic circumstances facing the Royal Mail. First, as we all know, the monopoly in delivery of mail ended on 1 January 2006 and so the company is now facing competition in a fully liberalised market. It is contemplating investment totalling, I think, approximately £1.2 billion in modernisation, but, as noble Lords have indicated, this is primarily to be paid for by significant price increases for consumers which the regulator, Postcomm, has indicated it is prepared to approve. The devastating position of the pension fund, which at the last count had a deficit of approximately £4.25 billion, has also been mentioned.
	We are aware that the freedoms available to competitors to raise funds for investment capital are not available to the Royal Mail because it needs permission from the Treasury and the DTI to borrow. Such borrowings count against the public sector borrowing requirement and therefore the Royal Mail is competing with other public sector priorities.
	I suspect that business mail—which makes up approximately 90 per cent of the mail carried by the Royal Mail—is now subsidising the universal service obligation. Royal Mail's competitors want to win a substantial share of the business mail, as the noble Lord, Lord Christopher, indicated earlier, and any loss of that market share by the Royal Mail could endanger its ability to meet the universal service obligation.
	I do not think that any noble Lord has touched on the next issue, unless it was when I was not in my place. Serious conflicts of interest are inherent in the new arrangements for the mail delivery system. That is because the DTI, which the Minister represents here today, has an obligation to promote the overall health of the mail market. Secondly, it owns the main operator. Thirdly, it is responsible for setting the regulatory framework. Fourthly, it appoints the regulator. So there is a structural difficulty there as we move into the liberalised world that started on 1 January.
	There is another built-in disincentive, of course, because the Royal Mail has no incentive to maintain unprofitable but socially important post offices, but has a positive interest in preventing them from winning new business from the new mail delivery companies. Again, there is a structural difficulty there.
	It will be widely accepted in all parts of your Lordships' House that the following four principles need to be implemented by the Government if they are to fulfil the objectives of the Motion of the noble Lord, Lord Clarke of Hampstead. First, it is clear that the Royal Mail must have the freedom to make investment decisions to give it the best chance of succeeding in the new liberalised market. There can be no doubt about that. Secondly, the universal service obligation must be guaranteed as a vital public service. I know the Minister will say that he does guarantee it. Thirdly—and this is implicit in what almost all noble Lords have indicated, certainly from the other side of the Chamber—the staff of Royal Mail must be given the opportunity to share in the success of the company, in whatever way that can be structured. Fourthly—taking up the point made by the noble Lord, Lord Christopher, about what the voters want—there is absolutely no doubt that the voters want a reversal of the decline in the Post Office network, both rurally and in urban areas, and they want branches to be improved and enhanced. I think that the four principles I have set out would be consistent with what noble Lords right across the Chamber would want.
	The Government can say they are prepared to make the funds available to implement those four principles. Few people would doubt that an investment fund of at least £2 billion will be necessary for the Post Office network when the money runs out in 2008. That will provide the necessary structure for the sub-post office network and maintain the training necessary to enable them to be used as shop fronts for a variety of public bodies and to give them the freedom to win new business as collection and deposit points, not only for Royal Mail but other delivery companies. Individual sub-post offices need to be given the freedom to enter into agreements with private sector companies for bill payment and other services. That is what needs to happen; the Government have to provide the money to do that or look at innovative ways of raising funding from Royal Mail itself.
	There are a number of ideas around and I should like to float a couple. First, the Post Office could be separated from the Royal Mail Group. Post Office Limited would then be retained in the public sector, giving post offices the chance to develop the new business opportunities I have articulated. Secondly, the Government could look at a shared ownership model for Royal Mail, with 51 per cent of the shares to be divided between the Government and Royal Mail staff, issuing shares to staff and small investors and selling the remaining shares to the market. The funds raised from that sale could provide the investment in the Post Office network and for the modernisation of the Royal Mail Group.
	The Government have a choice: they either provide the money for the objectives I set out, which I think would be universally agreed by all Members of your Lordships' House, or they have to use Royal Mail for some form of innovative financing package to raise the money. But they cannot do nothing.

Baroness Miller of Hendon: My Lords, along with other noble Lords, I thank the noble Lord, Lord Clarke of Hampstead, for introducing the debate, which he did so excellently, from his vast experience. It enabled other noble Lords, all with experience of their own, to contribute.
	I take note of what the noble Lord, Lord McKenzie of Luton, said. We have all run over the time allocated for speeches. I know that I am only just starting—

Lord Razzall: I did not, my Lords.

Baroness Miller of Hendon: No, my Lords, the noble Lord, Lord Razzall, most certainly did not, but he was about the only one. Doing so means that the Minister has less time in which to respond. So I shall refer to the points that other noble Lords have made and suggest that one reads them and then make one or two other points myself. I hope that that will give the Minister as long as he needs.
	The noble Lord, Lord Cameron of Dillington, spoke beautifully about rural post offices, as did others. Anyone wanting to know more can read it in Hansard. The noble Lord, Lord Brookman, spoke very movingly about how the pension problem affects individuals working in the Royal Mail. Others touched on pensions and one could certainly read what was said with interest. The noble Lord, Lord O'Neill of Clackmannan, blamed quite a lot of the problem on management and said they should have seen it coming. However, people did not disagree with him totally, and his speech is certainly worth reading.
	The noble Lord, Lord Brooke of Alverthorpe, made the interesting suggestion that something like NATS might be the answer. The noble Lord, Lord Dearing, pointed out the world problem—we are competing in India and China. He made the valuable point that the one thing we must keep for rural post offices is the Post Office card account. However, the noble Baroness, Lady Prosser, said that if the underwriting is not there, that would make it impossible. There is enough there for the Government to take away and see what has to be done.
	I speak as someone who ran a mail order business for 18 years. It was very successful, enabling me to go into Germany and Australia. I give grateful thanks to the enterprise and co-operation of all those who worked at Royal Mail. I was once told that 11 postmen were working as a result of the work that we gave them.
	This debate is very timely; the Trade and Industry Committee's Royal Mail after Liberalisation report has only just come out, and this is the first time anyone has had a chance to think about what it said will happen to Royal Mail after liberalisation. The debate is also timely because there will be plenty of competition from service providers. Other forms of communication are becoming increasingly popular and as no one else has mentioned them, I thought I might.
	The committee and Royal Mail made a fleeting reference to e-mail as a competitor to "through the letterbox" mail services, but none at all to the impact of fax. Yet fax is cheaper and swifter for ordinary mail that does not include bulky enclosures. You can save money on your stationery and do not even have to buy an envelope. I confess that in my office, if it is possible to send a fax, we do. It is cheaper. As a result of Royal Mail's problems, the price of postage will have to go up; I understand that it is much lower than the rest of the world, but people in this country have been trained to pay a certain price, and they will try and do things cheaper if they can.
	Despite the much trumpeted improvement in the postal delivery services, in the west end, where my office is, we get one delivery a day and are lucky if it has come by midday. People running a professional office, like that of a solicitor or doctor, need to be able to deal with mail before they go home for the evening.
	E-mail has advantages in cost and speed. Just before I started to write this speech—before I went away for eight days and had to finish it at two o'clock this morning—I had to write to eight colleagues at once. I sent one e-mail at no cost, but it would have cost £2.40 if I had sent the letters by post. Competition has won the day and it is not for the Royal Mail. I do not believe there is any way that Royal Mail or, for that matter, new entrants into the market will ever be able to compete even if, as the noble Lord, Lord O'Neill of Clackmannan, said, they should have seen this coming. They may have done, but ultimately, what does one do?
	The Conservative Party supports the liberalisation of the postal services market, but the timing has to be right. The money needed for the pension fund and the new investment makes it rather difficult.
	I shall miss out quite a bit regarding what has been said because I am determined that the Minister shall be able to speak as long as he needs to. He has to answer the questions; all I have to do is highlight them and say how interesting it was to hear them.
	The capital investment in the Post Office is terrible. The Post Office has been starved of the money needed to make sure that the infrastructure was ready for competition. If it liberalises, how can it compete with very old machines, where everything has to be hand sorted and is very labour-intensive? Cutting back on essential capital expenditure is short-sighted and counter-productive to say the least.
	I am going to miss out another bit, not because it is not important but because I do not want to run over my time. I know that the noble Lord, Lord Sainsbury, is nodding in agreement.
	Buried in Royal Mail's briefing note is the phrase:
	"We have been exploring options around Royal Mail's balance sheet with our shareholder".
	As the representative of the solitary shareholder, will the Minister tell us what those options are? That would be really interesting, although I do not expect him to tell us the conclusions.
	I am sorry that this sounds so jumbled, but I want to miss out the bits that are not so important.
	The other matter apart from investment is the yawning gap in the pension fund, which other noble Lords have mentioned—no less than a staggering £4 billion. The Royal Mail admits that:
	"The deficit is too large for Royal mail to trade itself out of through normal price increases over a reasonable period",
	so is it proposed that this deficit should be funded by the customers by what will be abnormal price increases, in a sort of 12 to 20-year hire purchase scheme? That would immediately reduce the competitiveness of Royal Mail over its new rivals who will not be carrying this millstone into the new market place.
	The Committee's report says:
	"We asked Royal Mail who they thought was responsible for the deficit . . . but they refused to be drawn".
	Well, I do not have to be so coy. The guilty party is none other than the usual suspect—the Treasury. The Treasury, under several governments—I make that clear so that the Minister will not attack me—has treated the Royal Mail as a sort of milch cow from which a form of stealth tax could be extracted without the need to consider investment or the pension fund as a priority. The Treasury took many pension holidays when times were good and got better dividends. The same Treasury, this time under our present Chancellor, looted the pension fund in its annual £5 billion raid. The answer is obvious. As this money was milched from the Post Office in the first place, and did not go to the customers sending letters around the country, the Treasury should pay it. Can you imagine what would happen to a company on the FTSE 100 which had the cheek to tell its customers that they would have to pay more for goods because the shareholders had given themselves the pension money as dividends?
	The question of privatisation was briefly discussed and discarded. I must agree that it is wiser that way because who would want to take shares in a company right now which has a massive £4 billion debt to its employees, has to use clapped-out machinery and is open to competition from outsiders who do not have the burden of having to provide a universal service to the remotest part of the country at an affordable standard price?
	I have had 10 minutes. When the clock says "nine", that is the beginning of the 10th minute, so I shall not say any more other than to thank the noble Lord, Lord Clarke, again for allowing us all to make these points. I wish I had been able to say it all because I recommended that everyone should read everyone else's speeches. I would like to have read all my suggestions, but I will no doubt discuss them with the Minister in due course.

Lord Sainsbury of Turville: My Lords, I first thank the noble Baroness for giving me the time to respond to this extremely interesting debate and congratulate the noble Lord on securing this debate on the Royal Mail. The noble Lord has spoken eloquently and knowledgeably about the issues affecting Royal Mail and I am grateful for the opportunity to respond. I have also been involved with the Post Office for many years—not as long as the noble Lords, Lord Clarke and Lord Young—but for 25 years, since I sat on the Carter committee that reviewed the performance of the Post Office 25 years ago. I also have a great affection for what is a great British institution. Looking back, what strikes me most is that, over that period—and it continues today—there is a constant need for the Post Office to adapt and change to the new circumstances in which it finds itself.
	The Government are entirely in agreement with the noble Lord, Lord Clarke, that the Royal Mail should serve the national interest. Royal Mail's "pipeline" is a vital part of the nation's communications network. It enables businesses to communicate with each other and with their customers and enables social users to send letters, cards and parcels from one end of the country to the other. The noble Lord raised the basic issue of the objectives of the Government for the Royal Mail. The Government's stated ambition for the Royal Mail is for a publicly owned company fully restored to good health, providing customers with an excellent service and its staff with rewarding employment. The Government's primary policy interest is to ensure the provision of the universal postal service—a daily delivery, every working day, at an affordable uniform price to every address in the country. We all want that to take place in the context of the needs of people in the 21st century. Since July 1999, when we brought forward a White Paper entitled Post Office Reform: A World Class Service for the 21st century, the Post Office has made very good progress. In 2001–02, the company was showing a pre-tax loss of £1.2 billion including a £318 million loss on its operations. The company was losing over £1 million every working day and its costs needed to be brought under control. Nobody could have disputed that restructuring and reform of Royal Mail was needed.
	In 2002, Allan Leighton, the chairman of Royal Mail, then known as Consignia, announced a three-year renewal plan to restructure its postal services. The aim of this plan was to reduce costs, wipe out these losses and return the business to profit by April 2005. I am pleased to say that Royal Mail has returned to profitability and the management has got to grips with costs and reduced overheads. In 2004–05, the company's profit from operations was £537 million. The latest figures, published in mid-November, for the half year to 30 September 2005 show that the Royal Mail Group made an operating profit of £159.3 million. These interim results show a 20.5 per cent improvement on the previous year.
	Nobody should underestimate Royal Mail's achievement. It is not in a dire condition, as the noble Lord, Lord De Mauley said, although it faces big challenges. The chairman, board, management and workforce should all be congratulated on their efforts to turn the company around.
	Not only is the company's financial performance improving, the company is also showing its best performance yet in terms of quality of service. Figures for the first half of 2005–06 showed that 93.9 per cent of first-class letters were delivered the next day. It is a performance that not only beats the company's target, but also beats any performance that Royal Mail has ever achieved in the past. A recent Postwatch survey showed that between the end of September and the end of October last year, 95 per cent of first-class letters in the survey were delivered the next day. That is an enormous improvement on the performance two years ago. We welcome these figures. Royal Mail, and, in particular, the dedicated postmen and women up and down the country who have put in a lot of hard work to achieve them are to be congratulated.
	As has been mentioned in this debate, industrial relations in the Royal Mail have also shown a great improvement in recent years. The number of days lost in the letters business through industrial action in 2004 and 2005 respectively was 7,541 and 4,283. That compares with nearly 85,000 in 2003. This has been achieved at a time of huge change in the structure of the business. The unions and management have both contributed to this improvement—as has the input from others such as the noble Lord, Lord Sawyer, who has made a valuable contribution with his independent reports on the state of industrial relations in the company.
	In addition, in recent years, the union has realised its ambition of £300 per week for employees and a five-day working week. I was pleased that the noble Baroness, Lady Prosser, explained what progress has been made. I also agree with the noble Lord, Lord Sawyer, that the unions and management need to develop ways of handling change in the future, because much change has to take place.
	While the Royal Mail has turned around its performance, it still faces many challenges and must modernise and radically reform itself if it is to compete head to head with other means of communication and its European rivals. For example, in common with many other companies, Royal Mail faces a pension deficit of £4 billion—a point raised by the noble Lord, Lord Clarke. The pension deficit has arisen because of market changes in the value of the pension fund assets—equities—the life expectancy of members of the scheme; and the way in which pensions are reported on company balance sheets.
	Less than five years ago the pension fund was more than £700 million. What we have seen take place in the Post Office mirrors what has happened in other public companies which badly underestimated the needs for pensions and took pension holidays. We consider that the costs involved in tackling the deficit are inherent costs of the business and as such should be reflected in prices. That was made clear in our response to Postcomm, regarding its recent consultation on the next price control and this has been reflected in Postcomm's final price proposals.
	Another challenge that the Royal Mail faces is that mail volumes have decreased recently by 1.2 per cent. As the noble Baroness, Lady Miller, also pointed out, the company will continue to face the challenges of e-substitution and increased competition both in the UK and overseas.
	Today's debate has raised all of these key challenges, so let me try to deal with the specific points one by one. The noble Lord, Lord Clarke, raised the question of market opening. The Government believe that competition will encourage Royal Mail to continue to improve its products, quality of service and operational efficiency. I was pleased that my noble friend Lord O'Neill reinforced this point. I would say to the noble Lords, Lord Dearing and Lord Hoyle, that of course there is never any best time for competition or opening of markets. I am sure that the noble Lord, Lord Dearing, with all his experience of the DTI, will have heard many times the argument why it is not the best time for competition; but it usually turns out that if you do not take those opportunities, competition never comes.
	The decision to open the market from 1 January 2006 was taken by Postcomm. The noble Lord, Lord Christopher, raised some questions about that decision. Postcomm's duties and functions are set out in the Postal Services Act 2000; its primary duty is to ensure provision of the universal service, and decisions must be taken against that background. The decision to open the market followed a full public consultation and was supported by, among others, Royal Mail management. Postcomm believes that the decision it has taken is in the best interests of UK consumers. The Government's manifesto said it would look at the impact of liberalisation, and it will do so, but only once the market has been opened and there is an impact to assess. There is no timetable for the review, but we will monitor the market now that it has been opened.
	I should point out in this context that other member states, notably Finland and Sweden, already have fully opened postal markets. The Dutch have said that their market will open from 2007, and the Germans have indicated the same. The Government will continue to press for full liberalisation across the rest of Europe, to happen as early as possible to ensure a level playing field.
	Another major theme, which the noble Lord, Lord Dearing, raised, is the whole question of productivity and the investment that is needed to achieve it. The Government recognise that Royal Mail has fallen behind its competitors in terms of mechanisation and productivity. In particular, the Dutch and the German postal service operators do considerably better. For example, the number of letters delivered per Royal Mail full-time equivalent employee in 2003 was 117,000, compared with 130,000 in Deutsche Post and 156,000 in TPG. Another important figure is that the percentage of letters walk-sorted—that is, for a postman's round—by machine for Royal Mail is 50 per cent, compared with 90 per cent to 95 per cent for Deutsche Post and TPG.
	Postcomm has also recognised the need for investment and its final proposals for the next price control make provision for £1.2 billion of capital expenditure over the next four years. In that context, the noble Lord, Lord Dearing, also raised the question of funding of the Post Office and the extent to which the Government have provided it with funds. The Government have made very substantial funds available to the company in recent years. In December 2002, we put in place facilities totalling more than £1 billion to help the company to implement its renewal plan for the letters businesses. In 1999, we made available some £500 million to enable the Royal Mail to acquire German Parcel, which has now been transformed along with other acquisitions into the Royal Mail group subsidiary, General Logistics Systems, which made a profit of £43 million in the first half of the financial year—up from £23 million in the corresponding period last year—and is expected to have profits close to £100 million by the year end. So when efficient management is brought to bear, we can compete very well.
	Comparisons have been made about the level of funding that has been available to Royal Mail's European competitors, in particular with the part-privatised Deutsche Post and TPG. The Government have made funds available of over £3 billion since 1999 to Royal Mail to support the restructuring of the mails business; investment in acquisitions; and the modernisation and restructuring of the post office network. There has been a lot of speculation in the media recently about the Government investing a large sum of money in the business. I should say that the Government have not agreed to inject £2 billion into Royal Mail, despite some of the reports saying that we have. But what we have said is that for the shareholder to invest in the company, Royal Mail would need to put an investment case to the Government in exactly the same way as a private sector company would approach its shareholder. The impact of Postcomm's final proposals for the regulatory settlement is being assessed, and future investment must be on a commercial basis. The Government also have to assess the affordability of any investment against other government priorities.
	I turn to what noble Lords have said, quite rightly, is a different and major debating issue—the issue of the social network and urban reinvention. The issue was raised by the noble Lords, Lord De Mauley and Lord Cameron, and is an enormously important subject. Of course, it is not only the letters side of the business that faces the challenge of change, as noble Lords have said. The future of the post office network is also a matter of national concern and because of the social impact of the network, Government have quite a different interest here.
	The world has changed beyond recognition in recent years. If the post office network is to survive and thrive it needs to change significantly. The Government want a post office network that can prosper on the basis of today's and future needs, not on those of 20 or 30 years ago. But in doing so, we also have to face up to present reality. Major sectors of the network are losing very substantial amounts, including the rural network, the directly managed "Crown" offices and the deprived urban area network. Clearly the status quo is not sustainable. Several important steps to restructure and revitalise the Post Office have already been taken but, once again, massive challenges remain.
	Decisive action in the form of the urban reinvention programme was taken to restructure the urban network. This saw almost 2,500 office closures while ensuring that, nationally, 99.3 per cent of people in urban areas still live within a mile of their nearest post office. We now need to address the issues facing the social network of sub-post offices in rural and urban deprived areas. It is no longer clear that the needs of those communities or the most disadvantaged are best served by the present traditional, costly and inflexible network structure.
	The social network payment of £150 million a year from the Government was introduced in 2003–04 as a transitional measure against the background of the migration to direct payment of benefits. It was intended to provide a financial breathing space in which Post Office Ltd would develop new products to replace lost income from traditional business and would identify more cost-effective ways of delivering its services.
	It is becoming increasingly urgent that we find innovative and more cost-effective ways of delivering post office services to rural and many urban deprived communities. We cannot ignore the fact that large numbers of rural offices have very low levels of utilisation, with some 1,600 offices averaging fewer than 100 customer visits a week. The 800 smallest rural offices average 23 customer visits a week, generating average losses of more than £6 per customer visit. The next smallest 800 offices, averaging 85 customer visits a week, generate average losses of £2.50 per customer visit. By any standard, that is neither a sensible nor sustainable use of financial resources for either Government or Post Office Ltd. Even in the busiest rural offices, each transaction is loss-making on average. We now need to focus much more clearly on provision of post office services, not post offices themselves, and find innovative methods of delivering them.
	Post Office Ltd is, therefore, running a series of pilot trials of alternative, innovative means of delivering services to rural communities. There are four of these main outreach options: a full service offered by the postmaster/mistress or a fully trained employee using either kit permanently at a site or portable kit as required; a partnered operation, which is a basic service, with access to cash, bill payments, stamps, weighing and leaving parcels being provided by another retailer alongside their main business, such as a petrol station or pub, but supervised by the core sub-postmaster who provides the site with the products required; a home service; and a mobile service. In all of the pilots, the service hours have been set at levels much more commensurate to the level of business generated in that community to eliminate the wastefulness of long opening hours with little or no custom. This is where our efforts and those of the Post Office should be directed, because we can give people a much better service that is economically viable for the future.
	I should like to touch on the subject of privatisation and employee shares, which a number of noble Lords raised. The Secretary of State for Trade and Industry has made it clear that the Government will not privatise Royal Mail. The Government's ambition is for a publicly owned Royal Mail fully restored to good health, providing customers with excellent service and its employees with rewarding employment. In this context I assure the noble Lord, Lord Brooke, that we are not ruling out options that could increase workers' involvement, including an employee stake. We think this is at least worthy of examination in the context of a publicly owned business where employee shares cannot transfer to non-employees. I should also add that the Government have not yet received any firm proposals from the company about an employee share scheme, and therefore we have not drawn up a detailed policy response to it.
	I shall address the comments made by my noble friend Lord Clarke about the appointment of Allan Leighton as chairman. I think his comments are totally inaccurate. As the chairman of Royal Mail is appointed by the Secretary of State, my department oversaw the process, which was conducted in a manner totally consistent with the Office of the Commissioner for Public Appointments guidelines. The post was advertised and Allan Leighton applied in the normal way, along with others. He was shortlisted, and the scrutiny panel considered him to be the strongest candidate. This recommendation was accepted by Ministers, and I think history has shown that it was the right appointment to make. I should also add that there is nothing in Allan Leighton's terms of engagement that relate to any future privatisation or part-privatisation of the Royal Mail.
	The noble Lord, Lord Brooke, raised the role of Sir George Bain, who is giving ongoing advice and support to the Secretary of State. It is not envisaged that the work he is doing will necessarily be drawn together in any single report.
	I shall deal with a final couple of points. The noble Lord, Lord De Mauley, raised the question of the increase in the pension deficit, which went from £2.5 billion to £4 billion. This was due to the application of FRS17, which has much more stringent requirements for the actuarial valuation. That is why the increase was so dramatic. My noble friend Lord Clarke raised the question of whether the Government will forgo dividends. The Government agreed to do so during the renewal plan period, and this was thought appropriate, given Royal Mail's poor financial position. A decision on future dividend policy is yet to be made. Future policy will be linked to the outcome of price control and resolving the balance-sheet issues the company is facing. Like all shareholders, the Government wish to see a return on their investment in the form of dividends, although this is not our only measure of shareholder value.
	I have found today's debate extremely useful. The standard of contributions has been particularly high. In turn, I hope I have been able to offer some greater insights into the Government's policy towards Royal Mail, and also to convince your Lordships that the national interest lies at the heart of it.

Lord Clarke of Hampstead: My Lords, in the three minutes left before I am advised this debate has to conclude, I want to thank all noble Lords who have taken part in what I consider to be an important and interesting debate. My colleagues on this side of the House will understand if I do not refer to their individual contributions, but simply say how grateful I am to them. I will be saying something about one of those speeches, though, if my time does not run out.
	I thank the noble Lord, Lord De Mauley, for the way he was able to put the case for the magazine publishers that I had to cut out of my original speech. That will be helpful for them, and will be helpful for me to go back to it when I read the debate. The noble Baroness, Lady Miller, is a great friend of the Post Office. I well remember the millionth packet she posted from her company, and the silver salver that was presented to staff at the time. It still resides on the windowsill of my old office—or the office I would have if I were still doing that job.
	I would like to go back to the days when we had 18 deliveries a week—even though they would stop when we went to the Arsenal on a Saturday afternoon when I had to deliver up Finchley Road, where the noble Baroness lives—and six collections a day, but those days have gone, and I accept the need for change. I found the description given by the noble Lord, Lord Cameron, of the social needs of our rural communities very moving. It set the scene for a number of other speakers. I will not list them all, but many speakers in this debate have mentioned this important issue. I am delighted that this House takes seriously the need to maintain the social fabric in communities. Politics aside, we have a system in this country we should be proud of, and we should do our best to maintain it.
	I was pleased to hear the wise words of the noble Lord, Lord Dearing, the only other post office worker in this debate—the noble Lord, Lord Young, was a telecoms man. The words of the noble Lord, Lord Dearing, are always wise, although they were not accepted as such when we were on the other side of the table trying to get an extra half per cent on our pay claims. I am sure the points he has raised have given food for thought.
	I shall mention just one person on this side of the House, and that is the noble Lord, Lord O'Neill. I do not know whether it was offensive or I am being over-sensitive, but to describe Post Office managers in the past as not being competent, and then to pray in aid the change, is a bit unfair. No Post Office chief executive or chairman ever had the scope they have had since Allan Leighton came on the scene. No one else cut the deliveries down to one a day. The noble Baroness, Lady Miller, mentioned that by the time you get the mail now, it is time to go home. And he talks about change. I was part of the working projects on automated letter-facing, mechanisation, and optical character recognition. Many things were developed by technicians in the Post Office research department that were foreseeing the future, and other countries have benefited from them. It would be unfair to draw any distinction about what happened in those days, because the money was not there to continue with that research.
	In conclusion, thanks again to everyone who has taken part in this debate. I beg leave to withdraw the Motion for Papers.

Motion for Papers, by leave, withdrawn.

Safeguarding Children

Lord Adonis: My Lords, with leave, I will repeat a Statement on arrangements on vetting and barring those who work with children, made in another place by the Secretary of State for Education and Skills. The Statement is as follows:
	"Mr Speaker, I am grateful for this opportunity to make a statement about the arrangements for vetting and barring those who work with children. As the House knows, I laid a Written Ministerial Statement at 9.30 yesterday morning, and I am grateful for this opportunity to update Members of the House and answer questions.
	"Child protection has been a top priority for this Government, as it was for the previous administration. Over the past 10 years the child protection system has improved fundamentally as a result of action taken first by the party opposite, which we have then built on with cross-party support in reforming our sex offences laws and setting up the Criminal Records Bureau. Given the scale of change over the past decade, it is helpful to set out briefly the systems currently in place before examining how the problems have arisen and what I propose to do about them.
	"List 99 covers those barred for life from working in schools, and has been in place for decades. The decision-making process has remained substantially the same, with Ministers required under law to make sensitive child protection judgments on individuals who have come to the attention of the police. There will be Members on both sides of the House with experience of making such difficult judgments.
	"We have significantly tightened List 99 in recent years. However, it does not act in isolation. The previous government paved the way for the introduction of the sex offenders register. We have established the Criminal Records Bureau. We have now committed to further strengthen the system through the implementation of a new vetting and barring scheme as recommended by Sir Michael Bichard. All these measures have significantly tightened the protection available to children and ensured that we have some of the toughest sex offender laws in Europe.
	"The system currently works in the following way. Where a teacher is convicted of one of a number of specified offences they will automatically go on List 99 which bars them from working in schools. The vast majority of sex offenders are therefore automatically barred from working in schools.
	"For other offences, or where the individual has received a caution, the law currently means that each case must be considered individually with a decision taken by Ministers, based on evidence and advice even though the individual will have been placed by the police on the sex offenders register. In my Statement yesterday I said that initial inquiries indicate that there have been a small number of such difficult cases. I fully understand the concern that this has caused and am determined to do something about it. I have therefore commissioned as a matter of urgency an exhaustive review of all such cases since the introduction of the sex offenders register in 1997 in order to confirm the precise number of these individuals, their whereabouts and whether their behaviour has been of concern to the authorities.
	"However, I am sure that both sides of the House will agree that these cases raise questions about whether these long-standing arrangements need to be changed. I will therefore also review urgently the decision-making process surrounding such cases and the policy implications: in particular, how the closest possible alignment can be secured between List 99, the sex offenders register and other data sources; the role of Ministers in the decision-making process; and how police advice can be more fully considered prior to decisions being made. This review will take place with the greatest possible speed and I will report to the House as soon as the facts have been established and I have reached my conclusion.
	"Finally, I should reiterate the Government's commitment to implement Sir Michael Bichard's recommendations to tighten the system for vetting and barring those who wish to work with children and vulnerable adults, and to bring forward legislation in this Session of Parliament. The Bichard system will also entail vetting in advance of entry into the children's workforce; the continuous updating of police information; and the ability for parents to check whether tutors, nannies and other individuals they employ are barred, and it will ensure that cautions and convictions are treated in exactly the same way.
	"The House will remember that legislation to implement the Bichard report was in the Queen's Speech. I can announce today that the Government will be in a position to bring forward this legislation at the end of February. Assuming the full co-operation of the other parties, I am confident that parliamentary time could be found for the Bill this Session.
	"I share and understand the concerns these cases have raised. That is why I made my Statement to this House at 9.30 yesterday morning and why I am grateful for this opportunity to discuss the matter on the Floor of the House. As Secretary of State I am accountable for all decisions taken in my department and I am determined to keep the House and the public informed. That is why the review I announced yesterday will take place with the greatest possible speed and I will make a further statement to the House as soon as I have considered its conclusions".
	My Lords, that concludes the Statement.

Baroness Morris of Bolton: My Lords, I thank the Minister for repeating the Statement made by the Secretary of State in another place, and welcome the opportunity to discuss such an important and urgent matter in your Lordships' House.
	Parents throughout the country need confidence and trust that the Government will provide a standard for all who work with children in our schools. The situation that has come to light this week will have distressed many and they rightly look to the Government for answers. Sadly, the Secretary of State's Statement has given us and parents precious few of those answers. We have still not had an answer to the crucial question of how many more cases there are where Ministers have approved registered sex offenders to work in our schools. In answer to questions in another place, the Secretary of State said that it would be wrong to give figures without the certainty of how many such individuals there are and where they are. That is quite right. But certainty is exactly what we expect from the Government. Why is it that, four days after this issue was raised, the Government still cannot give us this information with certainty?
	These are not obscure routine decisions. Each case will have merited a huge amount of consideration. Surely, therefore, it would be right to assume that information of this gravity should be readily available. The same is true of the question of which Minister took the decision on Paul Reeve. Who signed it and when? Why can the department not answer that question?
	The Secretary of State has announced legislation to implement the Bichard recommendations and that this will be published at the end of February. This vital legislation will therefore not be on the statute book until the summer, and the Secretary of State has indicated that it may not be fully operational until 2008—a full four years after the recommendations were first made. Why has this serious issue not been gripped sooner? Can the Minister also explain how this will tie in with the review that the Secretary of State announced today? If she is going to legislate to implement Bichard, why does she need a review? Why can the Government not simply say that those on the register of sex offenders must never be allowed to take up positions in our schools or to work with children and vulnerable adults?
	The Minister has been a governor of a school. Would he have been comfortable in the knowledge that staff employed at that school could be given approval by the Department for Education and Skills despite being on the register of sex offenders?
	This is not a party-political issue. All in your Lordships' House will agree on the importance of ensuring that procedures for protecting children and the most vulnerable in our society are as reliable and safe as they possibly can be. Sadly, today's Statement by the Secretary of State will have done little to reassure parents across the country.

Baroness Walmsley: My Lords, I too thank the Minister for repeating the Statement. The whole House will have the same objective—that children should be properly safeguarded and that parents should have confidence in the system. But there are many questions to ask. How many cases are there where people on the sex offenders register have been ruled by the DfES as safe to work with children? Who makes these decisions, and, critically, on what criteria? Who drew up these criteria? Will the Secretary of State review them immediately and publish them so that they can be challenged if appropriate and the whole system made transparent? Why did no one in the DfES speak up about this discrepancy in the lists during the Bichard inquiry so that he could consider whether the discrepancy was justified? Until those questions are answered every parent is going to worry that there could be someone unsuitable working in their child's school. That is unacceptable. However, the last thing we want to see is panic and persecution of innocent staff, as, unfortunately, we have seen when there is media panic about paedophiles. What we need are rigorous systems to safeguard both children and staff.
	In the case that sparked this debate the offence was accessing banned images of children. The person accused was cautioned and put on the sex offenders register. This means he must have admitted the offence, so this cannot be a case where someone accessed such images accidentally while surfing the Internet. Does the Minister agree that accessing child pornography is not a minor offence—it is child abuse? People who do this are adding to the profits of those who abuse children by making these photographs. They are complicit in that offence and are guilty of child abuse. In view of that, it is hard to understand a decision to allow a person who had admitted to such an offence only two years earlier to work with children.
	However, that raises important questions about the relationship between the various lists in existence. There is no automatic updating of List 99 from any other databases. People who are on the sex offenders register do not automatically get put on List 99. The Secretary of State clearly knew that, because she, or people in her department, reviewed Paul Reeve's position. She saw that he was on the SOR, but decided that her adviser's opinion that he was not a danger to children was acceptable. However, I understand that the police had not been contacted by the DfES about Mr Reeve's case when the decision was made to allow him to work in schools. Why was that?
	I do not favour automatic transfer of all people on the sex offenders register to List 99; it should be done on a case-by-case basis for the following reason. Under the Sexual Offences Act 2003, an 18 year-old boy who sleeps with his 15 year-old girlfriend can end up on the sex offenders register, even if that turns out to be a legitimate relationship that ends up in marriage and children. Noble Lords may recall that my noble friends and I and many other noble Lords on other Benches fought unsuccessfully against this at the time. However, it is now the law, so we cannot necessarily simply turn the sex offenders register into the list of people who should be barred from ever working with children. I was pleased to hear in another place a little earlier that the Secretary of State is not planning such an over-simplistic measure. However, one of her media statements suggested the opposite. In view of the contradictory nature of the two statements, can the Minster confirm that no such automatic read-across is planned?
	That brings me to a number of issues related to a head teacher's ability to make the right decisions in these cases. First, I would really like to know whether head teachers were made aware that they were employing someone on the sex offenders register. I am quite aware that the fact that someone does not appear on List 99 does not mean that they are approved to work in schools. That means that we need rigorous systems to help schools to make safe decisions about who to employ. Michael Bichard, who recently published his report on the Soham case, made serious recommendations about that. For example, in paragraph 4.61 he said that LEAs and governing bodies have a responsibility to ensure that head teachers and others involved in interviews can develop the skills needed to draw out child safeguarding issues during interviews. He pointed out that the head of the Soham school could not recollect having had any such training. He recommended that all heads and governors should receive such training and all interview panels should contain at least one person who has had it. He also proposed that the safeguards should be included in the inspection regime. I welcome the Government's commitment to bringing the Bichard recommendations before Parliament in February, but I fear that it is the current crisis that has brought that forward.
	In the mean time, Michael Bichard commented in paragraph 4.62 that there is a danger that too much emphasis will be placed on the CRB checks. We know that there are still problems with those; for example, cases can take up to five months. If there is to be a one-stop shop for background checks it has to be run efficiently. What plans do the Government have to improve that system? In view of the Soham case, Michael Bichard recommended that the enhanced disclosure regime should apply in all cases where the post would involve working with children and in schools. Do the Government accept that recommendation? How soon could it be implemented? In the same paragraph, he said that there is a concern that many abusers do not have convictions, and that no intelligence such as that which would come to light under the enhanced disclosure regime is held on them. Under those circumstances, it is all the more important that adequate training is given to school interview panels and head teachers. What plans do the Government have to address that issue?
	Finally, is it not outrageous that after all that has happened we are having to have this discussion today? Let the Government prove the veracity of their claims that the safety of children is their top priority.

Lord Adonis: I am grateful to noble Baronesses for their responses. I assume that the warm welcome that they have given to the decision to bring forward the legislation this month means that we will have full co-operation from them when that legislation is brought forward, as we will need to ensure its speedy implementation.
	I say to the noble Baroness, Lady Morris, that my right honourable friend the Secretary of State has made it clear that she takes full responsibility for all the decisions taken by Ministers in the department. We are not going to say which decision was taken by whom; she takes responsibility as Secretary of State for all decisions. A small number of cases are involved, and I stress that. It is right and in the public interest that we should gather together all the material on those cases, including the whereabouts and current employment of the individuals concerned, in a proper and systematic manner so that the information on the cases can be made available to Parliament, and the information on the whereabouts and other relevant details can be made available to the employers of those individuals where they are in employment and where that information is not known already.
	Both noble Baronesses made points about the speed with which we have acted. The Government have acted expeditiously and entirely in keeping with the undertaking that we gave to Sir Michael Bichard. Indeed, Sir Michael said as much in his interview on "Newsnight" last night, where he said that he had been in regular conversations with the department about the proposals. He said:
	"The department have been working hard since the inquiry on producing a single barring scheme and they've kept me in touch with what they were doing and I'm very impressed with the work actually that they've done".
	I stress that Sir Michael did not criticise us on that score. On the contrary, the Government published a post-Bichard vetting scheme plan before the general election. I have a copy here, and I will happily make it available to your Lordships. The scheme set out in that consultation paper made it clear:
	"The Government proposes to create a new vetting and barring scheme for people seeking work . . . with children or vulnerable adults. This is in response to recommendations made by Sir Michael Bichard . . . The proposed scheme will build on the existing barring list and Criminal Records Bureau services in order to provide a comprehensive, centralised, integrated and updated system to prevent unsuitable people from gaining access to vulnerable groups through their work and to ensure that those who become unsuitable do not continue in the workforce".
	The drawing-up of the scheme was undertaken following extensive consultation with Sir Michael. To quote from the document in paragraph 2.23:
	"Sir Michael looked closely at this proposal when he reconvened his Inquiry in January 2005",
	which he did specifically to review the Government's response to his original report. It continues:
	"He states that it meets all the material requirements of his recommendation and that he is therefore happy to endorse it".
	That is what Sir Michael said as set out in our proposal for the vetting scheme, which we set out in April. The Queen's Speech then made clear two months later the Government's intention to legislate. We are preparing the legislation at the moment, and we will introduce it soon. Our belief is that we have acted expeditiously in this mater. We have taken forward Sir Michael's recommendations in consultation with him, and the scheme that is put in place will be robust.
	There is a difficult issue about borderline cases, and there will still be a difficult issue even when the new scheme comes into effect. As the noble Baroness, Lady Walmsley, so rightly said, the fact that an individual does not appear on List 99 does not mean that they are necessarily a fit and proper person to be employed in a school. The whole reason for the system of CRB checks is to give the potential employer the additional information that is available to the public authorities, so that they themselves can make a judgment on whether it is appropriate to employ them. That includes all the information available to the police, including soft information that may not have led either to a conviction or a caution. In some cases soft information currently leads Ministers to decide to place an individual on List 99 even if they have received neither a conviction nor a caution. The two lists are not the same at the moment, and List 99 is not a subset of the sex offenders register. It includes individuals who, because of information available to her, the Secretary of State believes should not be validated for working in schools. Employers then, on the basis of the information that they have, need to make a judgment through their interview processes as to whether it is appropriate to offer a job to that person.
	As the noble Baroness, Lady Walmsley, rightly said, employers need proper training and support in undertaking that work. We have made further material available to schools in recent months, specifically to help them in that process. But I agree with her that this is a proper role for local authorities and others to be assisting governors with, to ensure that this very difficult business of assessing evidence that they have secured from all sources, including CRB checks, is properly weighed in decisions about offering jobs.
	The noble Baroness said that it was taking up to five months for CRB checks to be conducted. My information is that the average time to undertake a CRB check is 28 days. Those offering contracts of employment will, in the normal course of events, seek to secure references and other information that is relevant. The way that the system works enables them to conduct a CRB check alongside that process. If they get the information within 28 days, that in most cases would enable employers to decide whether to make a job offer after they have already secured the CRB information. So the CRB is working a good deal better than when there were problems three years ago, and it now offers a satisfactory and good service in the overwhelming majority of cases.

Lord King of Bridgwater: My Lords, my understanding is that the Government have accepted Sir Michael Bichard's recommendations and now intend to legislate to put them into effect. That will take some considerable time in some respects, as my noble friend indicated. Will the noble Lord give an undertaking, in so far as it lies within the power of Ministers by executive action to follow the spirit of Sir Michael Bichard's recommendations, to put them into effect immediately and not wait for legislation before proceeding?

Lord Adonis: My Lords, I can, indeed, give the noble Lord that undertaking. Part of the reason that we have asked for this urgent review is to allow the Secretary of State to make further changes in response to such a review in advance of the changes that will be brought about by legislation.
	The reason that it is taking time to set up a new vetting system is that the IT systems involved are very complex. The systems will allow for continuous updating of the list of those who are barred by all police authorities in the country. That requires a very complex system and the proper procurement process for that will mean that it will not be available before 2007 and in full operation until 2008. That was agreed with Sir Michael.

Lord Clinton-Davis: Does my noble friend agree that of course there is a real problem here, but equally is it not right that that problem should be examined in depth? He has outlined that today. Rather than come to hasty decisions, there is a strong case for review. Would not the noble Baroness be among the first to complain if rash decisions were taken about this most important matter? Is there not only a duty for teachers to report on any aberrant behaviour, but a duty to avoid witch hunts at all costs?

Lord Adonis: My Lords, I agree fully with my noble friend, not only about the importance both of constant vigilance on the part of all those who work in schools about aberrant behaviour that could legitimately give rise to concern, but about the importance of avoiding witch hunts. I should stress that these issues are very complex. It is not a simple and straightforward matter, as some appear to believe—that one could easily duplicate the sex offenders register and put it on the updated Bichard register that will succeed List 99.
	The decisions taken by the Department for Education and Skills at the moment on inclusion in List 99 include judgments that go beyond those factors which put individuals on the sex offenders register. That is appropriate, because the issue is not simply about an individual having a conviction or a caution for an offence which is relevant but whether there is other material information about their behaviour towards children that has come to the attention of the public authorities which could lead the Secretary of State to believe that they are not a fit and proper person to work in a school. It is absolutely correct that a Minister may have to make that judgment, but in many cases goes beyond the information that is available on the sex offenders register.

Lord Northbourne: My Lords, I apologise to the House for not having had the advantage of reading Sir Michael Bichard's report. Of course, I entirely agree with all previous speakers that it essential to have an effective and rigorous system of identifying teachers who may be a danger to children.
	However, perhaps I may put the matter in perspective and make a point that is relevant to the desirability of having the best possible system for identifying offenders. Unless you can give non-offenders, particularly male teachers, more confidence that they are not going to be the object of false accusations, we are going to move from bad to worse, from the present position where I think I am right to say that less than a third of teachers are male. Many men are being discouraged from entering the profession because of the fear of losing their careers and their reputation as a result of an accusation of sexual abuse.

Lord Adonis: My Lords, we have made it clear to schools and governing bodies that where allegations are made of the kind mentioned by the noble Lord, preliminary steps should be taken to ascertain their veracity very quickly so that false allegations can be rooted out without the effects that the noble Lord mentioned.

National Offender Management Service

Baroness Gibson of Market Rasen: rose to call attention to the impact of the National Offender Management Service on the Criminal Justice System; and to move for Papers.
	My Lords, I am very pleased to have instigated this debate at an important stage of discussions on the National Offender Management Service, otherwise known as NOMS. My main purpose is to air some of the more controversial issues that surround NOMS from the point of view of those who work within the criminal justice system, and in particular the views of the probation service, which will be greatly affected by the proposed changes. Other speakers far more experienced in this area than I will raise other matters.
	The debate about the introduction of NOMS has been long and changing. The report by the noble Lord, Lord Carter of Coles, produced in January 2004, proposed the establishment of NOMS. The aim was to bring the prison and probation services together under a single chief executive and to establish end-to-end offender management. The Government immediately produced their response, Reducing Crime—Changing Lives. Their proclaimed aims were to reduce re-offending by enhanced supervision of offenders, closer working between the prisons and probation services and a rebuilding of sentencing. Many would support those aims, but would not support the way that they have evolved since January 2004 and the confusion and lack of co-ordinated planning surrounding the establishment of NOMS.
	The lack of overall planning was highlighted from the start of the debate in 2004, when the appointments of 10 regional offender managers, known as ROMs, were made. Those appointments took place despite the fact that there were no job descriptions for those managers and a mounting uncertainty about their role, what they were aiming to achieve or how NOMS would operate overall. Increasingly, those working in the probation and prison services raised many questions on these and other issues, but received no satisfactory answers. Then in May 2005 came the general election and yet more proposals for change.
	The Labour Party manifesto committed the Government,
	"to ensure that every offender is individually case-managed from beginning to end of their sentence, both in and out of custody",
	and to offer,
	"voluntary organisations and the private sector . . . greater opportunities to deliver offender services".
	In October 2005, the Government produced a consultation paper entitled, Restructuring Probation to Reduce Re-offending, which put meat on the bones of the manifesto commitment. At this stage, I must ask why we are changing the probation service yet again. After all, the current National Probation Service and its directorate only came into being in 2001 following a high quality debate in which all parties involved in the criminal justice system took part. Most bodies, including the unions representing those who work in the system, welcome the 2001 changes. They believe that the changes provided the service, for the first time, with a national voice and a clear focus, as well as maintaining local accountability through the establishment of 42 regional probation boards.
	Those boards have brought a broad range of skills and experience to their work because they are part of the local community and of statutory services. They represent a wide and diverse conception of the local population and have an in-depth knowledge of the locality. Now, only five years later, such boards are to be abolished, which means the loss of all that local expertise. The regional probation boards are to be replaced by new bodies to be called probation trusts, which will focus on the business aspect of probation rather than the public service aspect. They will be contractor-only bodies and they will be expected to compete for work with the voluntary and private sectors. The powers to decide which local services should be commissioned will be handed over, I understand, to the regionally based ROMs via the Home Secretary. So the local groups established under the boards will be torn away from the local community.
	In November last year, the Home Secretary spoke to the All-Party Parliamentary Group on Penal Affairs, of which I am a member. He was open and frank with us, which was greatly appreciated. He explained that the central focus of the criminal justice system should be on preventing individuals re-offending. He said that what is needed is a clarity and coherence that has been missing so far. No one could object to such plans and I do not, but I do object to the piecemeal approach, which gives me no confidence that his aims will materialise.
	I believe that probation service workers should be prized by us all. They are professional people with invaluable expertise in, and knowledge of, their local areas. We as a society rely on them to work with offenders to identify what each offender needs to rehabilitate him or her and reduce the chance of their re-offending. Since 2001, they have increased their expertise and enjoyed the increase in resources and support provided by the Government. They do not understand why they should face another period of change, and nor do many of us. But we know that they will have to do so when we examine what the new concept of contestability really means for the probation service.
	Contestability was first mentioned by the noble Lord, Lord Carter, in his 2004 report. However, it was not at the centre of his proposals; it is the Government who have placed it there. Contestability means that the probation service will be split into two sections: one to deal with providers and the other to deal with purchasers.
	The Government insist on the term "contestability" but I, as an old-fashioned trade unionist and a former trade union official, prefer to describe it as "privatisation", or at least in large part privatisation. This is not even privatisation by the back door—in these proposals, the front door is wide open for the privatisation process. I am sure that I will be told that it is the definition of contestability that is all-important and that I am defining it incorrectly. I do not need a teach-in about contestability. I know what this contestability means, and probation officers and their managers know what it means. Contestability means that the probation service, which is and always has been a public service, will be opened up to competition. There are no limits or principles to contestability, and the inclusion of the voluntary and not-for-profit sectors does not remove the main threat: private business is becoming involved in a major public service in a muddled and badly thought-out way.
	A worrying factor is that there has been no analysis of the way in which the changes introduced in 2001 have worked. The system is not being changed because it has been found wanting; rather, we are being asked to support untested and untried proposals and we do not know why.
	One complaint about the system over the years is that it has been fragmented and departmentalised. The changes of 2001 were aimed at overcoming that and the probation service believes that they are working. The service has no faith in the new proposals, and both the probation boards and the probation officers—in other words, managers and staff—believe them to be unnecessary. Surely the voices of those working in the system should be listened to. Last November, the Home Secretary acknowledged that if the proposed changes were to lead to a more disjointed approach to an individual offender, that would be a total failure.
	I believe that the Home Secretary's commitment is genuine, but morale in the probation service is low. Workers are bewildered and fearful. They do not know what is expected of them and, worse still, after all the chopping and changing and contradictory proposals, they do not believe that the Government do either.
	The unions involved in the system do not consider that the business case for NOMS has been made. As the Home Secretary, when questioned in November, told us that the business case for NOMS is expected to be published only after the parliamentary timetable is known, they appear to be right. Not only do they fear that the multiplicity of independent contractors will cause confusion and place a wedge between the organisations which are already working well together, they also believe that this will create a position where "responsibility" cannot be pinpointed.
	It must be recognised that skills which probation officers have developed over the years cannot be learnt overnight, no matter how keen or well intentioned the voluntary sector or charity worker may be. Their local knowledge and skills have been built up painstakingly. A trusting one-to-one relationship between probation officer and offender is vital. If re-offending is to be truly tackled, that is necessary for the future. Supervision of offenders is not, and should not become, a business. It should remain in the public service in support of, and accountable to, our citizens.
	Privatisation of other parts of the criminal justice system cannot be said to have been a huge success. A report by the think tank, Catalyst, published 18 months ago, showed that high levels of labour turnover were a serious problem in many private prisons. Overall, turnover of prison officers is 25 per cent per year in private prisons—10 times greater than the turnover in state prisons. If that trend is translated to the probation service, it does not bode well.
	In addition, there is concern among probation staff about the timing of these proposals when probation is performing so well. November 2004 figures show that "breach" targets were achieved in 87 per cent of cases, offender behaviour programmes were completed in 91 per cent of targeted cases, and eight out of 10 of those under supervision were still in contact with their probation officers after six months of supervision. Those statistics show a system that is succeeding, not failing. Why change it?
	There is a further important factor relating to staff, which should not be dismissed lightly. Most staff joined the probation service because they wanted to work in a public service. A strong public service ethos exists. Enforced transfer to the voluntary or private sector does not appeal to many. I can understand that, as before I came to your Lordships' House many years ago, I used to work for the TUC. I chose to work for the TUC. Enforced transfer from the TUC to the CBI would not have been appreciated. I firmly believe that unless those working in the system accept and understand the reasoning behind the changes proposed, they are unlikely to succeed. It is obvious that both managers and staff are not persuaded.
	I have tremendous respect and admiration for my noble friend. She is a listening Minister. I ask her to reconsider the route that is being taken, particularly in light of the views of those working in the service. They believe that much of what the Government want can be achieved by expanding and building on the current system. Please listen to their professional views.
	Finally, I am led to believe that there have been approximately 750 responses to the Government's latest consultation document, and that only about 10 support the proposals. Can my noble friend clarify the position?

Lord Elton: My Lords, I apologise for arriving a moment or two late. I overestimated the interest of the House in the Statement that preceded this debate. I am most grateful, as are other noble Lords, to the noble Baroness, Lady Gibson, for giving us the opportunity to air not only her concerns about the prospects under NOMS but also to show that her concerns are widely shared, as I am sure we shall shortly learn. I am glad to see the Minister in her familiar, almost permanent place on the Front Bench, and look forward to her reply, which I think will be quite a difficult task.
	Plans for reorganisation have produced such widespread alarm, despondency and criticism that we should start by recognising the substantial advances that have been made by the Government in criminal justice matters. My concern is with young people, young offenders and potential young offenders. I recognise that, thanks to the Criminal Justice Board, YOTs, and so on, there have been changes, such that from 1997 the time from arrest to sentence of a young offender was 142 days, and in 2001 that had gone down to 71 days, which is a notable improvement. In 2001, 25 per cent of young people who were arrested by the police said that nothing happened afterwards. That dropped by 2003 to 10 per cent, which is good progress.
	We must recognise, too, the resource that the Government are putting into the probation service, which has risen by more than 46 per cent since 1997. Probation staff numbers have increased by 30 per cent. Most important, the young offender custodial population has remained more or less static since 1997, for which we should be truly grateful, while the adult population has soared.
	It should also be recognised that newly available sentences mean that almost one in three young offenders can make some amends for their misdeeds. That is good, and is a good message to offenders. But we should acknowledge the scale of the threat and the problem. There are now nearly 5.5 million 10 to 17 year-old children in England and Wales of whom roughly 25 per cent will have committed some sort of criminal offence in the past 12 months, if the level reported in 2004 is sustained. That is not good progress. I acknowledge the resources. The Youth Justice Board budget has gone up from £234 million in 2001 to £394 million in 2003. That is the cost of successful intervention, but what about the cost of failed intervention?
	The Audit Commission report on youth justice in 2004 states on page 6:
	"Many young people who end up in custody have a history of professionals failing to listen, assessments not being followed by action and nobody being in charge. If effective early intervention had been provided for just one in ten of those young offenders, annual savings in excess of £100 million could have been made".
	Probation work, as the noble Baroness said, is face-to-face work with criminals. In my case, the interest is with young criminals. It has to rest on trust, respect and time. It is disturbing that in 1996 the contact time available on average to a young offender was only one hour a week, and more so, that by 2003, contact time had risen to only one hour and six minutes. That is not sufficient progress, and causes me to worry about contestability.
	In 2004 the Audit Commission reported:
	"We found that although investment in early intervention has increased substantially in the last five years, it is often undermined by pressures to deliver improved outcomes in the short term".
	Those pressures exist now, but how enormously will they increase in organisations targeted on winning a competitive bid by producing good figures in time for the bid going in?
	That brings me, as it did the noble Baroness, to the 750 responses to the consultation on the proposals, and the alleged 10 in favour—740 against. I hope that the Government will not follow Ken Livingstone in his celebrated "consultation" on the extension of the congestion zone, which I think showed that 89 per cent were against. Having consulted, which was his statutory duty, he went ahead and did it. I hope that the Government will not follow that model.
	If their aim is to bring more of the voluntary sector into play, we should all remember that there are already 1,500 voluntary organisations in partnership with probation services throughout the country, which are doing extremely well. Why cannot that be extended instead of inventing an entirely new organisation? The aim is to have a seamless transition from conviction through treatment into ordinary life. For that we are all enthusiastic, but we must count the cost and see whether the right method is being used.
	My next anxiety is about the proposal to amalgamate the inspectorates of the Prison Service and the probation services. I shall not say much because there is somebody much more suitable who will talk about the issue later. Something that he may be too modest to say is the enormously valuable part played by the Chief Inspector in having the ear of the Minister and, perhaps more important in the political world, the ear of the public. If each service is subordinated to a supremo—a new Her Majesty's chief inspector of prison and probation services, it will be a buffer between the Minister and the services, and, more importantly, a buffer between the inspectorates and the public. Will the Minister take note of the concern that is widely shared that the individuality, independence and articulateness of the two services should be preserved under whatever arrangements are made?
	I said that the reward for a 10 per cent increase in early intervention would be the saving of more than £100 million a year. Early in this context means early in the offending career, but that is very late in the career of the offender. Almost all the characteristics predicative of criminality are formed well before the first crime is committed. The National Audit Office 2004 report on youth offending has a useful few paragraphs on the assessment scheme—ASSET—for young offenders. In figure 13 on page 31, they set out a hierarchy of the conditions predictive of criminal behaviour: "Thinking and behaviour" is at the top, followed by "Lifestyle", "Education", and "Family and personal relationships". I mention this, because it is easy to get it wrong. The first two lines, "Thinking and behaviour" and "Lifestyle", flow from the next two, "Education" and "Family". So family and education are actually the top predictors, which condition children to criminality. We must not lose sight of that. Intervention should be in the family and education at the earliest stage.
	As a schoolmaster, I have seen frustration in children unable to get the just results of their efforts; largely, in my day, before dyslexia was recognised as anything except a non-specific learning difficulty. That frustration, that inability to make use of the powerhouse of energy, imagination and hunger within a child, is a prime driver to desperate activity, for going out of school and doing something more exciting, where you can see your results—which you can do if you smash a window, a telephone box or, indeed, a motor car.
	We so often hear of children who simply have not got enough to do, perfectly respectable children who are bored to tears—they actually say so in their interviews. All of this is relevant to this debate, because we are talking about the volume of offenders going into NOMS, which is shaped to receive them. If only we spent a tithe of what we spend on catching and punishing offenders on preventing them becoming young offenders. If you want to harness the voluntary sector, look back into the dusty records of the Department of Health and Social Security, as it was, to a scheme, invented by the late Lord Ennals before he joined this House, called the Intermediate Treatment Fund. It is a prototype which should not have been shelved. It was shelved in the days of a government in which I had been a member, and I bitterly regret it. In that respect, at least, I hope I find myself closer to the Minister than I otherwise would.

The Lord Bishop of Exeter: My Lords, I too thank the noble Baroness, Lady Gibson of Market Rasen, for giving us an opportunity to debate the major changes now in train in our criminal justice system. These changes are the most far reaching in living memory and deserve careful consideration. I recognise that the creation of NOMS marks a bold attempt to move away from fragmentary and short-term measures to consistent and constructive ways of dealing with offenders. Although I have reservations about the terminology, the goal of "end-to-end offender management" is right, and long overdue.
	What is less clear is whether the institutional means adopted will adequately serve that admirable goal. We are in the midst of a huge experiment, the outcome of which is highly uncertain. That is troubling for those who work within the system and, as the noble Baroness indicated, especially in the probation service, as it faces dismantling and reconfiguration after a somewhat hasty process of consultation.
	The effectiveness of NOMS will depend on developing partnerships in local communities, and between prisons and local communities, to provide supervision for prisoners on release and appropriate programmes for offenders serving community sentences. As the noble Lord, Lord Elton, has reminded us, much valuable work is already done in the resettlement of offenders by voluntary organisations, including churches and faith-based groups. At their best, these are able to offer strong motivation, flexibility and innovation.
	It is good that this has been recognised in the formation of the alliance to reduce re-offending, and in the extensive consultation and planning being undertaken by the NOMS voluntary sector unit. Reducing re-offending is not just the business of professionals but a shared task within civil society as a whole. Members of churches and faith communities will want to respond to the opportunities and challenges of NOMS by entering into partnership with others who share their aspirations.
	Having said that, I must voice some anxieties. In the light of our experience of dealing with offenders, the goals of NOMS are not only admirable but highly ambitious. It is excellent that national and local strategies for resettlement follow the seven pathways derived from the report of the Social Exclusion Unit. However, responding to the multiple needs of offenders is difficult and costly. It is a fine principle that a single offender manager should be responsible for the whole programme of work with an offender, with better risk assessment and sharing of information, but will the organisation be equal to these demands? Above all, will the necessary resources of staffing and funding be forthcoming? What will be done to ensure continuity of expertise and high consistent standards?
	The greatest uncertainties lie in the realm of commissioning and organising services. This may be unavoidable, but we are losing the overarching framework of expertise and accountability currently provided by the probation service without knowing what will emerge from the complex web of contestability between public, private and voluntary agencies. Like some others, I find in the structures of NOMS a potential conflict between the promotion of co-operation and the desire to control. I am not sure which tendency will prevail. I also fear that competition may lead to silo mentality and working, rather than genuine co-operation. There are great gains to be realised from the new partnerships which will be created and fresh energies which may be released. These will be negated, however, if the system of management does not allow them to flourish with independence and integrity, and within a culture of genuine co-operation.
	However, sober realism about the challenges and the dangers does not entail being negative. I welcome the fact that NOMS is taking seriously the problems of capacity faced by voluntary organisations and is encouraging them to approach commissioning by building consortia, within which the stronger organisations can help and advise the weaker. In this way NOMS will be able to mobilise the commitment and local knowledge of such organisations, without subjecting them to intolerable administrative and financial strains. I particularly welcome the recent decision to appoint a faith-based development manager to develop a strategy, in partnership with NOMS and the voluntary and community sector, to underpin the work of faith-based organisations with offenders and their families.
	I conclude by drawing attention to an area of work which, while not strictly speaking part of NOMS, is closely related and highly relevant to it. Community chaplaincy originated several decades ago in Canada, and has now taken firm root in this country. Like NOMS, community chaplaincy seeks to build bridges between prisons and the wider community. It aims to provide support to offenders on release and, to the extent that they wish, to help them on their journey of faith. It is not in the business of managing offenders, but it shares the concern of NOMS with resettlement needs. It recognises that one of the greatest points of vulnerability in the rehabilitation process comes at the point of release from a highly structured environment back into a community where support levels may be low, and pressures to re-offend high. Typically, community chaplains in prison work with those being released to assess their needs, and refer them as appropriate to a network of volunteers in the areas to which they are discharged.
	At present, 10 such schemes have sprung up across the country in response to local needs and vision, and a similar number are being planned. At the heart of community chaplaincy is partnership, because, like NOMS, it depends upon integrated planning, and sharing of information and resources. It involves partnership between prisons and local organisations, between statutory and voluntary agencies, and between religious and secular groups. In many areas it is appropriately inter-faith. To date, both Muslim and Hindu communities have been involved with Christian ones. This is not a sectarian movement, but one which seeks to unite people in serving the common good.
	As with any other work with offenders, it is legitimate to ask questions about the effectiveness of community chaplaincy. One of the earliest projects was set up in Swansea in 2001 and has been systematically evaluated over its first two years by Dr Joanne Portwood. She found that just over a quarter of prisoners released from Swansea prison requested some kind of support from the community chaplain, and that the reconviction rate of those who took part in the project was 22 per cent compared with the expected rate of 55 per cent. Although that figure must be treated with caution, and the influence of other resettlement work must be allowed for, it would suggest that the project may have helped to save £6 million of public money as a result of preventing reconvictions.
	Therefore, I am pleased that in his lecture to the Prison Reform Trust last September the Home Secretary commended community chaplaincy as an excellent example of the contribution of churches, faith groups and the voluntary sector to reducing re-offending. However, developing community chaplaincy is not easy. It demands sustained and sensitive work to create and maintain partnerships and to plan work in an uncertain funding environment. It requires responsible management with attention to the training, supervision and support of volunteers and careful monitoring of standards, but the potential achievements and rewards are considerable.
	If the difficulties are considerable within the relatively free structure of community chaplaincy, how much greater will they be within the colossus of NOMS? As we travel into the unknown, I cannot help thinking of the man in the parable told by Jesus who began to build a tower without calculating the cost and found himself unable to finish it. The seriousness of managing offenders requires that we get the details right at national, regional and local levels, for the price of failure would be high.

Baroness Massey of Darwen: My Lords, I am grateful to my noble friend Lady Gibson for securing and introducing this debate. She got in early with a punchy start and reminded us that we must all follow the progress of NOMS very carefully. I agree that a key issue is how any process of change is managed. Taking along collaboratively managers and staff in any system is essential.
	I want to focus on the issue of drug treatment within NOMS as part of the Government's national drugs strategy. I have to declare an interest as chair of the National Treatment Agency for Substance Misuse, which was set up in 2001 to increase the number of people in treatment and to reduce waiting times. That we have done, and we are now concentrating on the quality of treatment following our recommendations set out in "models of care", which I shall refer to later. I shall also refer to two documents, the National Reducing Re-offending Delivery Plan, and the NOMS Strategy for the Management and Treatment of Problematic Drug Users within the Correctional Services.
	Let me first give a brief background to drug use and offending and then post some issues that I think are important, including a couple of questions for the Minister. There are approximately 250,000 to 280,000 problematic drug users in the UK. There is, as we know, a strong link between drugs, crime and social exclusion. Many people commit crimes to fund their drug use and for many offenders mental health problems are associated with misuse. Drug treatment is not easy to deal with. There is no one solution and users frequently lapse. We need to be sure that any changes make things better.
	The correctional services have a good opportunity to intervene and to treat drug and alcohol use as part of the offending behaviour. Until recently, such interventions have been haphazard and incomplete. There is still a long way to go, but at least we now have extra funding and government strategies to tackle these challenging issues. For example, funding for drug interventions in prisons and probation amounted to more than £152 million in 2004–05.
	I was pleased to see that the National Reducing Re-offending Delivery Plan is owned by five government departments. That sends a signal that drug and alcohol misuse have to be tackled not just through punishment for crime or health intervention, but across other supportive measures, such as housing, education, employment and social care. Indeed, the first chapter of the delivery plan is all about partnerships and subsequent chapters discuss the various pathways to help and support. Chapter 7 discusses the drug and alcohol pathway. The NOMS drugs strategy and the government drug interventions programme should work closely together and through a forum consisting of relevant government departments and my agency, the National Treatment Agency for Substance Misuse.
	At a local level, drug action teams lead the work by delivering interventions through the criminal justice integrated teams. The case management of drug-misusing offenders may begin before, and continue after, a period of treatment as part of supervision under NOMS. This encourages problematic drug users to access treatment and should provide continuity of support. The key issues are early intervention and the uptake of treatment. Once treatment is taken up, the key issues then are to retain people in treatment, so that they can fully benefit from it, and to build in community support. The proportion of people completing drug treatment and testing orders has risen from 28 per cent in 2003 to 36 per cent in 2004–05. Such orders are challenging and last from six months to three years. I hope that such progress will be maintained.
	The integrated drug treatment system is due to be in place in prisons nationally by 2008 and should offer a wide range of treatment options, including stabilisation and maintenance prescribing for dependency, not just detoxification. All clinical services will be commissioned by primary care trusts by April 2006. Many of us have serious concerns about the quality of prison healthcare generally and it is something that we should be watchful about. We should welcome the options that will be available for drug-using prisoners. Sudden detoxification in prison can be disastrous, often resulting in a return to using or, worse, death from overdose.
	I understand that there will be a unit or some other means of monitoring the drugs strategy within NOMS. The function of such a service will be to analyse information, set standards, liaise with stakeholders from the National Drugs Strategy, report to Ministers, sponsor innovation in drug programmes, commission evaluations and bid for resources to support the strategy. Again, I look forward to the detail of this; how it will work; and how these functions will be encompassed within the new arrangements.
	There are now also regional offender managers, referred to by my noble friend Lady Gibson, whose role includes ensuring that drug services available to offenders in their region comply with the National Treatment Agency's models of care so that good standards are set and offenders receive continuity of care when they move from custody to the community. A single offender manager will be responsible for each adult offender from beginning to end of sentence, developing with the offender a sentence plan and motivating the offender to complete the plan. I have a question about that shortly.
	The needs of young people who offend and use drugs are different from those of adults. It is vital to use different approaches. Others have talked and I know others will talk about the needs of young people. The noble Lord, Lord Elton, has raised many concerns which I share, particularly those about the issue of prevention. Many of us feel deeply that appropriate alternatives to custody must be found. Certainly, young people who are drug using need creative alternatives to punishment. Their lives are frequently chaotic and strategies need to be put into place to address their complex needs. I am aware that the Youth Justice Board is taking this issue extremely seriously, and I hope that, within NOMS, these concerns will be addressed and not neglected.
	I have a few final points and then a question. The concept of case management is fundamental to both NOMS and drug intervention programmes. Given that the same clients will often be involved with both services, it is crucial that key arrangements are agreed to manage individuals between both agencies. The introduction of Custody Plus next year will effectively mean that every drug user who receives a prison sentence will be released on licence and, given that the majority of these are likely to be referred to a drug intervention programme, it will become even more important to achieve a seamless working relationship. Is the Minister confident that such relationships and other inter-agency relationships will be developed effectively?
	The role of regional offender managers in relation to the commissioning of drug services still seems unclear. NOMS has confirmed that it does not have any immediate plans to withdraw its contribution to the pooled treatment budget to fund the treatment element of drug rehabilitation requirements. As its commissioning role develops, it will be important to ensure that it is integrated into existing joint drug action team commissioning structures. If that does not happen, there is a danger that much of the work to integrate criminal justice based drug services with mainstream provision will be undermined. Does the Minister have any comments on the role of regional offender managers in this context?
	I look forward, as chair of the National Treatment Agency, to working on improving drug treatment systems for offenders in conjunction with other agencies and government departments. It remains to be seen how NOMS will function. Many challenges lie ahead, not least those of partnership working and workforce morale. I know that the Minister is deeply concerned about these issues, and I look forward to her response.

The Earl of Listowel: My Lords, I too thank the noble Baroness, Lady Gibson of Market Rasen, for calling this important and timely debate. I also thank my noble friend Lady Stern for providing us with a very helpful briefing yesterday afternoon.
	My theme will be the need to balance the restructuring of the criminal justice system with the need to enthuse and engage those officers providing direct care to ex-offenders and those who immediately manage those officers. The Government have set an ambitious target for reducing re-offending and protecting the public. It is acknowledged that a solid relationship of trust and consistency with an interested adult is a key part of the rehabilitative process. Relationships of trust are vital to success. That has already been stated in the debate. Part of that is due to the sad histories of many of these offenders, their family backgrounds and the lack of trusting relationships.
	Perhaps I may praise the Government, through the Minister, for all the important steps they have been taking to increase support for families and thereby address the roots of criminality. I think particularly of the children's trusts that the noble Lord, Lord Filkin, has been so involved with. Indeed, I very much welcome the Written Statement on Tuesday entitled "Anti-social Behaviour: Respect Action Plan". It stated:
	"The cross-government drive to address problem families and support good parenting is at the heart of our strategy to build a code of respect for the 21st century".—[Official Report, 10/01/06; col. WS 4]
	I very much welcome that Statement. I also pay tribute to the work that the noble Baroness, Lady Scotland, has done to protect children from the fall-out of domestic violence and on the special court which she has been involved in setting up.
	There is widespread support for the principle of end-to-end case management. The question of private provision is more contested. In foster care there are private providers who provide a very good service and that has been acknowledged. In children's homes there are some catastrophic and appalling private providers, but there have also been good ones. It is a means of obtaining capital to provide more children's homes.
	I will therefore listen with interest to the Minister's response to the concerns raised. I note particularly what the noble Baroness, Lady Gibson, said about the turnover rates in private prisons. Given what I said about the importance of trusting relationships, that rate of turnover worries me very much. It seems to make matters difficult to manage.
	In principle, however, I would support what the Government were proposing if I had a sense that there was significant enthusiasm among those working directly in the field for that project. If I had the sense that the Government were carrying with them probation officers working in the field, I would be much less concerned about the matter.
	Several of your Lordships were good enough to take part in a debate that I held in October last year on safeguarding children. In my mind, the most significant risk for children in this country arises from a lack of social workers and a continuing crisis in social work provision. There has been a revolution in the structure of services since the death of Victoria Climbié and I welcome many of the changes. I mentioned the children's trusts. I recently visited a pilot children's trust in Stevenage. The head teacher and childcare workers to whom I spoke were enthusiastic about the new opportunities of co-operation that arise from that children's trust. The social worker to whom I spoke could think only about the heavy burden of work that she was trying to manage and the new burden placed on her by the restructuring within the local authority. It caused me great concern to see her state of mind.
	When we, at the centre, propose changes—perhaps particularly in the area of social care and associated areas—we need to think carefully about the implications of such changes for those working at the front line with vulnerable people. I remember the history of the Child and Family Court Advisory and Support Service—which was formed with the very laudable and sensible aim of restructuring the private and public law provision in the area, but which was, sadly, poorly thought through and managed. It was desperately sad to meet so many former social workers and guardians ad litem—people at the top of their profession—leaving prematurely because they had become so disillusioned with management. CAFCASS is now under new management and I understand that things are improving, but I am sure that the Minister will know better than I that children will have suffered because of their lack of timely access to guardians as a result of the badly managed change and restructuring.
	The Government have taken important steps to improve the quality of experience of children who are taken into public care. I very much welcome that. Still, one in seven children in care has more than three placements in one year and the most problematic children have many more. The more difficult that children are to manage, the more placements they are likely to have. The more placements that they have, the more damaged they become. When young people leave care, it becomes more difficult to redress their past experience, which has left them marked. One should seize every occasion to give them the experience of a trusting, stable relationship with an adult who is interested in them and in their good. When those young people arrive in prison, one must make the most of that experience—and for other children who do not enter care but have experienced abuse or neglect or family breakdown.
	Those relationships of trust and confidence with a particular person are so important in rehabilitating offenders and to the Government's achievement of their target of reducing the rate of offending. It is extremely important that the hearts and minds of those working at the front line should be won over by the Government, which would persuade me to give my support. I am concerned about a possible haemorrhaging of experienced probation officers, as we have seen in social work. There are new young social workers whose senior social workers are either so overstretched with their case load or have left for administration or other work that those green newcomers do not get the support that they need to be effective in their professional role and to sustain continued involvement in such a difficult environment. That may be one reason for some of the difficulties that we have now. I would be loath to see changes that led to such disillusionment in the professionals working in this area. What steps will the Government undertake to win over the hearts and minds of people working at the front line?

Lord Ramsbotham: My Lords, I join all those who have congratulated and thanked the noble Baroness, Lady Gibson, for obtaining this timely and important debate. I use both of those words very deliberately. Two years after the introduction of the National Offender Management Service seems a very appropriate time to do something that I would like to achieve if I could change the lighting in this House. I am sure that we have all driven along the motorway and noticed the signs that pass you messages. I would like to change the small clock in the Chamber so that, instead of saying "0:00", it said: "Stop. Think.". However, only out of all the respect and admiration that we have for the Minister, I would put "Please" in front of it.
	I am extremely glad that at the beginning of this debate the noble Baroness reminded us very pointedly that at the heart of the National Offender Management Service are people who have to manage offenders. You could be forgiven for thinking that, so far, NOMS has been all about the management of the management of offenders and not about offenders themselves.
	I should like to open with a quotation:
	"It was a fundamental mistake to ridicule the worth of the enemy, as [our] papers made a chief point of doing in their propaganda. The very principle here is a mistaken one; for when they came face to face with the enemy, our soldiers had quite a different impression. The mistake had disastrous results. Once [our] soldiers realised what a tough enemy he had to fight he felt that he had been deceived by the manufacturers of the information which had been given him. Instead of strengthening and stimulating his fighting spirit, this information had quite the contrary effect. Finally he lost heart".
	For the word "our", the word "German" should be inserted. Those are the words of Adolf Hitler in chapter 6, part 1—entitled "War Propaganda"—in Mein Kampf.
	It is very cautionary to realise that putting out false information and making false claims about things that you are doing has a terrible effect on people who know because they can see that that is not actually the truth. That is why I worry when I hear statements made by the previous Minister with responsibility for prisons that the establishment of NOMS now provides clear leadership and accountability for the performance of all the correctional services and for reducing re-offending. That is not how it seems. On looking at the impact of what NOMS has achieved so far, cynically, you could say that the re-offending rate has gone up from 53 per cent when new Labour took office to 60 per cent now. The Prison Service and Youth Justice Board budgets have effectively had to be frozen in order to accommodate the NOMS budget, and last night I learnt that the size of the NOMS bureaucracy is already up to 1,694 people on top of the bureaucracy that existed before.
	That is the negative side, but I do not want to be negative, as I am sure that none of the Members of this House wants to be, about this hugely important subject: protecting the public. That is what the National Offender Management Service aims to do. Therefore I want to concentrate instead on my plea—"Stop. Think."—so as to remind us of what this is all about and what we hope will come out of it. The speech of the Home Secretary on 19 September last year has already been mentioned. I was pleased with what he had to say and in answer to a subsequent question of his, "Do you think my vision can be realised?", the answer is "Yes, provided that the changes are made to support its implementation". I shall remind noble Lords of what the Home Secretary said about that vision at the heart of his statement:
	"We have to make preventing re-offending the centre of the organisation of our correctional services. We have to make reducing the number of re-offenders the central focus of our policy and practice. We have to create a package of support and interventions for each and every offender, and we have to do this in a totally methodical way. While I acknowledge that the practical problems are real and require care and caution in implementation, I also believe that much of this is about common sense. It is about forming the right partnerships, developing the skills of those who work within the system, making sure that the structure of our prisons estate supports those goals and getting the right organisational structures in place to support all this".
	Hear, hear, but many of them are already in place and they do not need replacement, they need refashioning. My concern about so much of what we hear about NOMS is that instead of taking that line, there has been too much emphasis on replacing.
	Ministers rightly speak very highly of the work of the existing Criminal Justice Board and the associated local criminal justice boards that include representatives of the courts, police, prisons, probation services, local government, health, education, social services, the voluntary sector and so on. They are all there now. They do not need replacing but strengthening, and the great thing is that they involve local people and therefore are more likely to be in touch with those who actually have to manage offenders. Given that, what is the role and purpose of these people called regional offender managers, all of whom are now in position, all of whom are functioning differently, none of whom has any kind of budget, but all of whom have staffs?
	I move on to prisons because I probably know more about them than the other bits. I do not have the time to go into detail, but taking the line of the Home Secretary is entirely what I believe is the aim of the Prison Service: it is to help prisoners to live useful and law-abiding lives by enabling them to challenge the offending behaviour and problems that have put them there. But the Prison Service cannot do that alone. Such work has to be continued in the community in the form of aftercare, which is where the probation service comes in. To do that a structure is needed, but the service does not have one. For 10 years now I have been repeating this over and over again. The two words, "responsibility" and "accountability", do not appear in the Prison Service structure. No one is responsible for women, juveniles, young offenders, local prisoners, training prisoners, resettlement prisoners, lifers or sex offenders. Therefore it is impossible for the Minister to give an instruction for something to happen with women, shall we say, and it would be done everywhere because someone is responsible and accountable for doing it.
	Population management is not delegated down to areas. This means that far too many prisoners are nominated prisons centrally so that we find people from south London in Northumberland. That is a nonsense. Population management should be handled locally so that all offenders, if they are to be given such end-to-end management, are in the area where it can be given to them. But if prisoners are to receive these full, purposeful and active programmes that will occupy them all day, it will require resources. No one has yet costed imprisonment. No one has asked how much it will cost to provide all these programmes for everyone—why I do not know. But the fact that we have so many prisoners sitting doing nothing perhaps distorts the fact that we do not have enough money to do so. If we do not have enough money, we should ask whether it can be done in another way—for instance, by employing prisoners to help work with other prisoners and so on. This is where the voluntary sector comes in.
	In all of this, the overcrowding is complicated by the Government's demand that, for example, prisoners out in the hands of the probation service should be sent straight back when they breach. Our local prisons are now struggling with an additional 10 per cent of their population being returned for breach, many of whom do not know why they are there. So the whole system is complicated by the fact that it is not being co-ordinated.
	The probation service has been well covered and I shall not attempt to add more except to say that I find the responses to the consultation paper Restructuring Probation to Reduce Re-offending—the number of which has already been mentioned—extraordinary. Included in the 750 responses against its proposals are those from judges, magistrates, the police, the local government associations and others and not only from the probation service.
	The voluntary sector, which has an important role to play, is both confused and, dare I say it, alienated by the word "contestability". The voluntary sector does not compete for contracts and the public does not donate money to enable it to do so. There is a great danger that the smaller organisations which cannot compete will not be able to play their part, and that the larger ones may dissipate some of their funding in order to seek competition.
	So what should happen? I go back to what I said at the start: Stop and Think. Perhaps I may dare to suggest to the Minister that he has got time to do so. The chief executive of NOMS has resigned and the Government are looking for a new one. They therefore have the chance for a new start. The plan to privatise all the prisons on the Isle of Sheppey has been stalled, so there is a pause in the way in which privatisation is being tackled in the Prison Service. The Home Secretary has indicated in a letter to me that he is considering the responses to the probation paper this month, so the Government have a pause in which to stop and think. I hope that when they have heard all the contributions from noble Lords in this debate, they will consider doing so. We all feel so strongly that this should not be allowed to go by default.

Lord Filkin: My Lords, I thank my noble friend for initiating the debate, even though I am not going to agree with her.
	The noble Lord, Lord Ramsbotham, has set out clearly the central question and the Home Secretary has articulated that we have to make preventing re-offending the central aim of NOMS and the central focus of policy and practice. That clarity of political statement is enormously valuable and there is not much disagreement about it. The debate therefore is how we are going to bring that about.
	First, I hope that the House agrees that change is self-evidently necessary. If one looks at what we are currently getting from the system, where 60 per cent of offenders are reconvicted within two years and for each reconviction it is estimated that five crimes are committed; and where re-offenders commit half of all crime—and, therefore, in a Utopian world, where we have stopped re-offending we would have cut crime by half—one sees that it could hardly matter more.
	We know that the costs of re-offending to the criminal justice system—let alone to society—are well over £11 billion a year. This is a description of a system which, despite the excellent efforts of many of its participants, is not delivering adequately. It is not for want of money—or, rather, it is not simply an issue that has been starved of resources—because since 1977, in real terms, we have invested 25 per cent more in prisons and nearly 50 per cent more in the probation service.
	There are two fundamental reasons why the system is not working. The SEU report in 2002 made the shattering statement that no one is ultimately responsible for the rehabilitation process. In other words, there was ambiguity of leadership across the system. Secondly, the system, like Topsy, has grown over time. It has not been designed from principle to seek to reduce re-offending as one of its central goals.
	I trust, therefore, that we agree that change is necessary. If so, the question is what the template should be for that change. We are grateful to the Home Secretary for that September speech; when I read it, my heart was lifted up by it. Before going further, I should make declarations that I forgot to make initially. I have a daughter who works for the Prison Service and I am in discussion with Serco, a company which produces some offender management services. I make this speech at the behest or in the interest of neither of them, but because I have a passion for the subject.
	In his speech, the Home Secretary set out a template for change. The key elements were that there should be a contract between the individual offender and the state. Offenders committed to reform and change their lives and the state committed to put in the intervention, support and motivations to enable them to do so. A package of support and interventions tailored to the individual would focus on that clear goal. It required, as he said, a thorough assessment of what in the individual's life, skills and experience was leading them into a pattern of criminality. Therefore, the package of support would be focused around the five clearly necessary areas of health, education, employment, social and family links, and housing.
	The Home Secretary also set out, even more challengingly but necessarily, the need for a change in the way that the prisons are used better to make the interventions that would be provided to offenders more likely to work. As has been mentioned, NOMS has a challenging target to reduce re-offending by 10 per cent in only four years.
	I trust that in broad terms we are agreed that these are the key elements of the template for an agenda of change to reduce re-offending in our society. If we are agreed, how do we implement such a system? I suggest that it is a debate about means, not about ends. The debate should therefore be informed by rationality and by a passion by all of us to find how best to reduce re-offending rather than investing futile energy in trying to defend a very imperfect status quo.
	We know what some of the process of change should be. End-to-end offender management, maximising employment, actively promoting innovation and diversity in the way services are supplied. We should also seek to motivate the totality of the system and its participants—the state and the individual—to achieve the goal of reducing re-offending. You do not get much in life without motivation. Lastly—and this is where the contention focuses—we should actively develop other supply options over a period of time better to harness expertise wherever it may be available and better to achieve the goal of re-offending rather than starting from the assumption that only one form of delivery, one form of practice, one form of service approach, will necessarily achieve it.
	Let us focus on the last bit, where the rows happen, about commissioning and competition. I speak, I am afraid, as someone who has spent far too many years of his life trying to reform public services, most of that time as a senior manager. In many situations—not all—there are benefits in having a clear commissioning function. The benefit of doing so is that it encourages the commissioner to think clearly and intellectually about what they are trying to achieve and what might be the best means of doing so, unfettered by the vested interests that any of us who are actually providers always bring to that agenda to try to moderate the pace of change or moderate the ambition of what is being sought. I speak as a former provider as well as a former commissioner. In principle, there is benefit in the commissioning model if it is well done and in principle this is an area where commissioning could be beneficial.
	Secondly, I think that competition is important. That is unfashionable, but again, going back to my harrowing years of managing services in local government, one looked for years and years to find ways that would bring about improvement in performance and productivity and better outcomes. Many things do that—it is not a simple elixir—but I saw nothing that brought about the speed of change, for those local authorities that were prepared to approach it intelligently and positively, than compulsory competitive tendering. We all spoke in exactly the same terms as my noble friend mentioned—that this was a wicked Thatcherite policy, the end of civilisation and would destroy public services. We all enjoyed using that language 20 years ago and believed every word of it. But for those authorities that went into it seriously, the achievements of improvement in performance were quite remarkable. Sometimes new suppliers were brought in, but much more was achieved by shaking up a system that had no self-evident right to exist and had to look at much more radical means of improving its performance. We should not throw away competition lightly as a mechanism for improving performance.
	If that is right—and I believe strongly that it is—it comes to how we do that, which is extremely complicated and difficult. It needs a lot of thought about how the commissioner develops a market, engages suppliers and treats the existing workforce in a way that does not make them so negative that they spend their time defending change rather than going positively about how to seize the advantages that this new environment offers them. Therefore, I urge my noble friend and the Home Secretary that they are broadly right in the direction of travel that they are going in, but enormous thoughtfulness is needed in terms of how we move forward to develop the model that was so brilliantly set out by the Home Secretary in his September speech, which, I believe, if we do well, this House will applaud, because we recognise the need for change and for radical change.

Baroness Howe of Idlicote: My Lords, I welcome this debate on NOMS and thank the noble Baroness, Lady Gibson of Market Rasen, for securing it. I also look forward to the Minister's reply because there are clearly a number of aspects of government policy in this area which are causing considerable anxiety.
	First, like others, I have no difficulty in sharing the Government's objective. Secondly, I am glad to agree that change is necessary and that recent years have seen the beginning of some real improvements in offender management. The recent government document, Reducing Re-offending through Skills and Employment, gave some good examples of that. But, my third point is again concern—which is shared by many others—at the scale of upheaval which is now in prospect. So few stakeholders and independent commentators have been persuaded that the case has been made for such drastic change in some of these areas.
	I certainly can agree that the Government's determination to cut the appallingly high rate of re-offending by those with previous criminal offences is clearly a vital priority. More than 50 per cent currently re-offend and, for prisoners under 18, 82 per cent are reconvicted within two years of release. The cost of all that re-offending to the criminal justice system alone, without taking account of the cost to victims, the community, or the offenders themselves, is no less than £11 billion. That is an appalling figure if it is true.
	There are many causes for this. Diverting potential offender behaviour early must always be a government priority. Deprived backgrounds and poor parenting, combined with toleration of truancy, are well known breeding grounds. Shamefully, truancy and school exclusion are in the background for 72 per cent of young offenders; but, alas, in addition, mental health and alcohol and drug abuse are playing an increasingly worrying role, and services in this area remain in need of urgent extra funding and attention—and, above all, adequate specialist resources.
	If reconviction rates are to drop then, along with tough measures against anti-social behaviour, about which we have heard quite a lot in the past couple of days, we clearly need to prioritise education and skills training and essentially to work to provide work opportunities in prison and community sentences. It is in that regard that business and the private sector could be enormously more helpful than they are currently. So, too, will be needed better support, including adequate accommodation, for those leaving custody. The closer that that can be arranged to the offender's natural roots, the more likely it is to succeed. More reliable and locally based community provision is quite essential if productive non-custodial alternative sentences are ever to become a reality.
	Two striking features stand out from that catalogue of requirements. First, they all depend on partnership between public services, voluntary organisations and businesses. Secondly, those partnerships just have to be local, and often very informal in nature. The latest proposals appear to push responsibility in exactly the opposite direction to the regions—the ROMs—and, ultimately, to the Secretary of State.
	In my days as chairman of a London juvenile court, although I admit it was some time ago, those objectives were pursued above all by extensive partnerships between all the agencies working with young offenders, including social services, education, police, probation and magistrates and the judiciary. They all worked together, thereby improving each group's awareness of what was and was not effective. Interestingly, that kind of local partnership has begun to emerge again under, and as a result of, the 2001 reorganisation of the Probation Service; but, one gathers, it will clearly disappear if the latest proposal for the so-called restructuring of the Probation Service is pursued.
	Like other noble Lords, I am increasingly concerned by some of the consequences that flow from the review done by the noble Lord, Lord Carter of Coles. The Westminster Hall debate in the other place on 17 December focused interestingly on those anxieties, but made disturbing reading. Four words appeared to me to illustrate those anxieties: contestability—and, okay, we all agree that we do not much care for it; continuity; implementation; and evidence. Contestability may have some merits, even if the experience that we have had so far with private prisons, as we have heard today, has not always delivered the results or the value for money anticipated. But to impose that rigid and often rushed application on all aspects of the NOMS remit is surely unnecessary and unwise.
	As was pointed out in the Adjournment debate, some core competences are not ever outsourced, yet it is clear from restructuring probation to reduce re-offending that if adopted the probation service—a core competency if ever there was one—would inevitably disappear. Yet since the last restructuring and with the help of much-needed extra resources, which the Government themselves provided, considerable successes have been achieved. It surely cannot be the Government's wish to destroy an organisation whose 100 years as a key component of offenders' rehabilitation has earned universal respect.
	I simply have to ask: what kind of institutional continuity is that? How can that enhance the continuity of management of individual offenders that this so-called reorganisation is intended to achieve? One would not expect the probation service to be in favour of these changes, and indeed they are not—but neither, it seems, are any of the other partners involved in offender management enthusiastically backing these reforms. Are the judiciary, the magistrates, local or educational authorities, social services or indeed that all-important voluntary sector backing the Government's approach? Others have referred to this, and I hope the Minister will answer these questions.
	The voluntary sector, like others, believes the newly formed Probation Board is being increasingly successful in encouraging communities to work in partnerships at local level for the benefit of offenders and the community as a whole. Clinks, which represents the many voluntary organisations working in the criminal justice system, is concerned that introducing contestability will seriously damage voluntary organisations' independence and their ability to compete. Many, too, as your Lordships will know, have remits that are strictly limited to local areas. How, they wonder, as we all do, will the change to probation trusts be implemented? How many appointments will have to be made? Are they all by the Secretary of State? With what qualification? Will it be under Nolan-type surveillance, or will the yet-to-be-named successor to Dame Rennie Fritchie—now the noble Baroness, Lady Fritchie—who set such an important example as a vigorously independent Commissioner for Public Appointments, be involved? And at what cost; for example, by way of compensation to chief executives who lose their jobs? To what extent, if at all, will proposed new probation trust members be required to have local connections? Will potential new providers of probation services have the same high degree of professional training and accountability? And so on.
	Who, for example, will have the responsibility for lifers' reintegration into the community? I see from the Minister's recent reply to my noble friend Lady Stern that the Lifer Management Unit no longer exists. Of the approximately 6,000 lifers, all but a handful—some 29, I believe—will be leaving prison at some stage. Quite apart from their own obvious need for support and guidance, their local community is surely entitled to know that their supervision is in the hands of professional, highly trained people.
	Finally, I turn to evidence. The Probation Board Association focused most clearly on this point. Evidence that these changes are likely to produce positive results for society is, it says; with commendable understatement, "not apparent". There is "no detailed financial analysis" to show how the suggested annual savings of £1.7 billion will be produced. They say:
	"We have seen no evidence that the . . . changes will command the widespread level of support that will be needed".
	Both Scotland and Wales have considered and rejected the Government's approach. Where is the evidence that they are wrong?
	I like to think I do not often harry Ministers with such a long catalogue of questions, but when the Government are proposing such sudden and fundamental changes in a service for which I have almost lifelong respect, one is entitled to argue that it is for the Government to prove their case.

Baroness Stern: My Lords, I too am grateful to the noble Baroness, Lady Gibson, for calling this important debate, and for setting out her case so clearly, fearlessly and honourably. The Government's proposals for the National Probation Service have aroused considerable interest and controversy. In preparing for this debate, we have been able to drawn on the excellent session of the Home Affairs Committee on 6 December, when the Minister appeared before the committee. We are all looking forward to the publication of that committee of the further information the Minister promised on why the Home Office changed its mind so dramatically between the announcement of the decision to keep the probation boards and that of the decision not to keep them. Yesterday a book of essays by very experienced academics was published. They do not come from ivory towers but have between them more than 70 years of experience of working in the Home Office at senior levels. They pointed out the strong possibility that the Government's plans for the probation and prison services would not work.
	The idea of the National Offender Management Service in marrying the prison and probation services is based on the idea that imprisonment should be drawn closer to local communities and carried out within a framework of awareness that almost all prisoners leave prison and therefore need to reintegrate themselves into their local areas. This idea has considerable merit. The Home Secretary articulated it impeccably in his speech to the Prison Reform Trust last September when he said:
	"The way forward in tackling re-offending is to draw in resources from the wider community. I see these prisons"—
	that is, local prisons—
	"becoming far more engaged with their local communities, and better at building relationships with a wide variety of other organisations. I attach particular importance to . . . [local] prisons becoming a vital part of the civic fabric of every locality".
	As the noble Lord, Lord Filkin, said, that was, indeed, a speech that made one's heart leap.
	As far as I can see there is considerable, if not universal, agreement that this approach makes sense, is supported by the evidence on what helps people to desist from crime, and is achievable by policy change. However, there is no such agreement on the best way of achieving it. In Scotland, for instance—here I declare an interest as the convenor of the Scottish Consortium on Crime and Criminal Justice—the method of achieving it has been to bring in new legislation which will integrate the prisons as far as possible into the local arrangements for dealing with defendants and offenders—local arrangements which are broadly accountable to local government.
	In England and Wales the approach has been to diminish the importance of the local level and to bring decision-making up to regional level. These are very large regions—only 10 for the whole of England and Wales. As we saw in the latest set of proposals set out in the consultation paper Restructuring Probation to Reduce Reoffending the plan is to remove the element of local accountability for the probation service. It is on this set of proposals in particular that I wish to concentrate. I want to look at them from the perspective of the evidence on which they are based and how far they will achieve what they set out to achieve.
	I want to look first at one piece of evidence used in the paper to support the proposal that all probation service functions should in principle be able to be put out to contract. I understand from what the Minister said to the Home Affairs Committee—though this is from the uncorrected proof—that there are no limits on which probation functions can be marketed—court reports, contribution to the youth offending teams and working in the multi-agency public protection panels. The Home Office document says that,
	"we have already seen the benefits of competition in the provision of prison services".
	I should be grateful if the Minister could give me a little more information on the basis for that view about the benefits of competition. The latest independent report I can find on the performance of private prisons in England and Wales is the National Audit Office report of 2003. These are the conclusions of that report. First, the performance of private prisons in delivering what is in the contract "has been mixed". Some private prisons have delivered and others have not. Secondly, private prisons,
	"span the range of prison performance".
	The best are better than most of the public prisons; the worst are at the bottom among the least well performing public prisons. Thirdly, private prisons have brought some innovation in the use of technology and in the way they recruit and use their employees, but,
	"little difference in terms of the daily routine of prisons".
	The report concludes that the use of private prisons,
	"is neither a guarantee of success nor the cause of inevitable failure".
	I can only assume that the evidence used for these proposals relates to a different independent evaluation. Is there such an evaluation, and if so what did it say?
	I also notice that on 15 December the Commission for Social Care Inspection published its report on Oakhill Secure Training Centre, which is a privately run secure centre, a sort of children's prison, where children aged 12 to 17 are sent by courts to serve custodial sentences. The centre opened on 19 August 2004 and the inspectors went in in May 2005. They said:
	"We were very concerned at the low numbers of staff on duty at the STC. Between 28 March and 24 April there was not a single day when the STC was anywhere near reaching the minimum staffing levels set by the Youth Justice Board for 80 places . . . The numbers of staff deployed on shifts meant those on duty were stretched to capacity to provide care and safety".
	I must ask the Minister for some clarification. Presumably this centre was commissioned, if that is the right word, by a commissioner. When commissioning of commercial contracts is being done, is it not a requirement to see that the contractor can fulfil the contract? Having enough staff working for the company, or having a chance of recruiting enough staff, seems a very basic requirement. I would really appreciate an explanation of how this process of commissioning works, since it is so fundamental to the whole concept and structure of the plans for probation.
	I shall briefly cover the responses to the Home Office consultation on the proposals. I am interested, as other noble Lords have been, in two responses in particular; that of the judiciary and that of local authorities, because they both seem to be crucial. The judiciary, the judges and the magistrates have to have confidence in the arrangements, otherwise they will not pass community sentences, more people will go to prison, and that will cost a lot more. Have the judges and magistrates responded to the consultation, and if so what was their view? The second crucial partner is the local authorities. They have access to many services that are needed for the successful social reintegration of offenders. They co-ordinate many local partnership arrangements, which are concerned with the reduction and prevention of crime. Many convicted people will live in local authority houses and their children will be known to local authority social workers.
	I understand that the Local Government Association has responded to the consultation and has expressed three main concerns. First, it notes the,
	"lack of meaningful local accountability for offender management services".
	Secondly, it states that the proposed commissioning model with its central and regionalised structure runs counter to current policy development to localise responsibility in decision-making. Thirdly, it states that the contracting model of service delivery may hamper partnership working and goes against the plans for all other public services. Does the Minister think that the Local Government Association comments have any validity? How does she propose to respond to them?

Lord Birt: My Lords, I join the catalogue of those who have already thanked the noble Baroness, Lady Gibson, for the chance to offer our views on NOMS, in my case in favour. I start by declaring an interest as until recently the Prime Minister's strategy adviser involved inter alia in criminal justice policy. In addition, my partner is the former director general of the National Probation Service.
	The criminal justice system has a number of different objectives. It aims to achieve justice in respect of victims, offenders and the wrongfully accused. It ensures appropriate punishment for the guilty. It seeks to rehabilitate offenders and, most importantly for society as a whole, its key purpose is to reduce offending.
	The overall level of offending in the UK has been dropping for a decade, but there is no scope whatever for complacency, as the noble Lord, Lord Filkin, reminded us. Offending still remains unacceptably high by international standards. The high-volume crimes that cause immense trauma to millions of victims each year and which exact a high economic toll—robbery, burglary and theft—are committed by a cohort of persistent offenders many hundreds of thousands strong, a hard core of which each typically commits many hundreds of serious crimes per year. Almost all persistent offenders become known to the system as they are tried and convicted for one of the many crimes they commit, and as they move through the system's revolving doors, often over and over again.
	Many offenders are victims themselves of poor parenting or of broken or dysfunctional families. Often they have been taken into care. Generally they lack skill or qualification. As the noble Baroness, Lady Massey, reminded us, some offenders are heroin and crack addicts, responsible for the bulk of acquisitive crime. Invariably, they offend many times a day to fund their habits. Continually relapsing, tragically most will retain their habit for a lifetime. Beyond those involved in high-volume crime, there are a number of other important categories of offender, including those involved in ingenious frauds, increasingly over the Internet, people who use violence, especially within close relationships, or dangerous offenders, including those capable of heinous sexual offences.
	The establishment of NOMS is a critical reform, because by far the most significant way of reducing crime further is to grip those different offender populations—most importantly, the persistent offender. NOMS should see the end of the historic "pass the parcel" system of managing offenders. Contrary to the sincere fears expressed by staff, fairly articulated by the noble Baroness, Lady Gibson, NOMS will not reduce, but greatly extend and strengthen, the classic probation function of managing offenders. For the first time, it should enable a single-minded, end-to-end focus on offending behaviour during the whole of the sentence, both in custody and in the community. It should allow the development of different stratagems for different categories of offending behaviour. It should enable us to hold a single individual, the chief executive of NOMS, personally responsible for reducing re-offending over time.
	As we have been reminded more than once this afternoon, NOMS represents a bold and radical reform in other ways. The introduction of a purchaser/provider split, with the offender management line holding the funds and acquiring offender services at arm's length from public, private or voluntary providers, will reward effectiveness, innovation and efficiency. Unlike the noble Baroness, Lady Gibson, I have no doubt about that, not least because of the benign impact of similar arrangements, rightly imposed by a Conservative government on both the public and private sector in broadcasting, in which I spent much of my career. The introduction of an independent production sector in particular transformed broadcasting for the better. I entirely concur with the eloquent advocacy given by the noble Lord, Lord Filkin.
	Henceforth, with NOMS, institutional funds will be won only through competition. New business disciplines will be needed in prisons and probation. Widespread cultural change will be necessary. New organisation-wide systems and processes will have to be introduced.
	None of this is easy. Organisational reform on this scale is presenting daunting challenges to all the dedicated people who manage and work in the component parts of the old, directly funded, historically monopolistic, correctional system.
	So far, sad to say, the implementation of the blueprint for NOMS proposed by the noble Lord, Lord Carter, has had a sticky and uncertain start. NOMS does not in any meaningful sense yet exist. But, as the Civil Service increasingly aims for excellence in business skills, including finance, technology, human resources and project management, and as it increasingly draws in expertise and experience from outside its ranks, I anticipate that the service will rise to the task of making this challenging institutional reform the success that it needs to be.
	We must not give up on NOMS. We should pause and consider by all means, but certainly not stop. However difficult the challenge, we must hold true to the vision. NOMS is the right reform and offers an enormous prize. We could be the first country in the world really to grip offenders and thereby to intensify our attack on crime and all its dreadful consequences.

Lord Dholakia: My Lords, I add my thanks to the noble Baroness, Lady Gibson, for introducing this debate. It is timely because the probation service has had a rollercoaster ride for the past few years and there is an urgent need to ensure stability, in terms of both the objectives and resources of NOMS.
	The success of NOMS will be judged on one key and overriding measure: whether it can reduce reoffending. In particular, NOMS will be judged on whether it achieves its stated targets of reducing reoffending by 5 per cent by 2008 and 10 per cent by 2010.
	I welcome the contribution of many noble Lords. I do not disagree with much of the criticism about NOMS and I could certainly add to it but I shall avoid the temptation. If we are where we are, then we need to ask ourselves what should happen. In principle, combining the prison and probation services into the single National Offender Management Service should increase the prospect for achieving what I commonly call "reduction in reoffending"—a subject that I have addressed repeatedly in your Lordships' House.
	Bringing the two services together in this way has the potential—I repeat: the potential—to improve joint working between those involved in working with offenders in custody and those doing so in the community. It has the potential to improve the resettlement of offenders by developing co-ordinated resettlement plans as prisoners move through the prison gate from custody into the community. It has the potential to increase the effectiveness of the way in which individual sentences are planned and managed from the pre-sentence report stage right through to the end of the sentence. It also has the potential to improve accountability for reducing reoffending. Whereas previously this responsibility was divided between the two services, accountability now lies squarely with NOMS. I welcome this because no longer can we pass the buck from one service to the other—the buck stops at NOMS.
	If NOMS's aim of reducing reoffending is to be achieved, it will require prison regimes to provide a more comprehensive range of educational courses and opportunities to ensure that prisoners of all levels of educational ability can receive opportunities appropriate to their needs. It will also require far greater attention to be paid to the practical resettlement of offenders in areas such as employment, accommodation and family support. We must never underestimate the importance of those factors for offenders in and out of our penal institutions. Research showing the importance of resettlement in the reduction of reoffending is well known. Ex-prisoners who get and keep a job have their likelihood of reoffending cut by one-third and one-half, depending on which study is considered. Getting ex-offenders into stable accommodation reduces their reoffending rate by at least one-fifth. Ex-offenders who have family support are reconvicted at a rate between one-half and one-sixth, compared with similar offenders without family support.
	Moreover, those effects are related. For example, it is harder to get a job without basic skills and harder to keep one if you are homeless. Practical help with resettlement also increases an offender's ability to make a success of drug rehabilitation programmes, which was raised by the noble Baroness earlier, and programmes to change offending behaviour.
	The development by NOMS of targets to get more offenders into employment and sustainable accommodation is therefore welcome. If the targets are to be achieved, the involvement of voluntary and community organisations is crucial. The voluntary sector has particular strengths in areas such as housing, employment, mentoring, addiction, mental health, family services and community engagement. Yet disappointingly, the past few years have seen a fall in the proportion of probation service budgets devoted to partnership programmes with the voluntary sector. The proportion has declined noticeably since the removal of the requirement of the probation service to devote 7 per cent of its budget to partnership work with the voluntary sector in 2001. Since then the proportion of probation budgets devoted to working with the voluntary and private sector combined has plummeted to 2.4 per cent. NOMS should reinstate the previous target, and it should develop a specified target for partnership working by prisons.
	I am pleased to see that the probation service is working on plans to increase the volume of its work with the voluntary sector by 20 per cent over the next year. That is a welcome step in the right direction. I understand that the probation service also proposes to ensure that future contracts with the voluntary sector are for at least three years, and that they provide full cost recovery for voluntary organisations, including overhead costs. That is important because too often voluntary organisations are expected to subsidise funding that does not take into account core services.
	Will the Minister assure us that those will be permanent future requirements for all voluntary sector contracts with NOMS, the Prison Service and the probation service? The increased commissioning of voluntary sector organisations to provide resettlement services for offenders should be carried out in a carefully planned and co-ordinated way. Many people working in the Prison Service, the probation service and the voluntary sector have expressed concern about the possible impact of contestability on the delivery of services.
	The Minister will be well aware of the fears that have been expressed about that issue. Prison and probation staff are concerned that their livelihood could be threatened by competition from the private sector. Voluntary organisations are concerned that they could be eclipsed by glossy and well resourced private sector bids to carry out work in areas where they believe they have expertise. Smaller voluntary organisations are concerned that they may lose out to larger national organisations in a competitive bidding process.
	I am pleased that the NOMS voluntary sector unit has been working closely with voluntary sector organisations, and consulting them on their views on these issues. However, it would be to everyone's benefit if the provision of services and the future increased involvement of the voluntary sector were commissioned on a carefully planned basis rather than on the basis of a competitive free-for-all.
	On a related point, services should be planned in a way which has input from, and is sensitive to the needs of, local communities. The Minister will know that many concerns have been expressed about the proposed abolition of local probation boards, and their replacement by more business-oriented probation trusts. Probation boards include many people who have strong roots in local communities and community organisations. If they are disbanded, I hope that the Government will ensure that other mechanisms are set up at local level to ensure community consultation on, and input to, the development of services.
	The disproportionate representation of black and minority ethnic offenders in the prison populations and probation caseloads is well known. It is crucial that NOMS should integrate targets for the achievement of race equality into all its service delivery targets. Although the NOMS business plan for 2005–06 included targets for minority ethnic staff, I was disappointed to see that it contained no race equality targets for service delivery. This is quite the opposite of what the Commission for Racial Equality recommends. Can the Minister assure us that this will be remedied in future business plans?
	Whereas the Prison Service has a substantial race and diversity unit, the equivalent unit which previously existed in the National Probation Directorate has been reduced in size and fragmented over the past two years. If NOMS is to achieve racial equality targets as an integrated service across its whole operation, it should consider four specific steps—first, establishing a joint central equality and diversity unit; secondly, establishing an advisory group on race, of the kind which until recently existed in the Prison Service; thirdly, developing joint positive action for training initiatives; and finally, if NOMS is to have a reasonable chance of achieving its rehabilitation objectives, it is important that prisons are not swamped.
	The Government can set the direction, but the professionals and volunteers will provide the results. Many of them feel bruised. It is time to bring them into a partnership that will provide the rehabilitation of our inmates which is at the heart of our criminal justice system.

Viscount Bridgeman: My Lords, following, as I so often do, the noble Lord, Lord Dholakia, I do not wish to be too negative in my comments. In thanking the noble Baroness, Lady Gibson of Market Rasen, for setting the scene when she asked why the system should be changed yet again, one must recall that it was only two years after the creation of the National Probation Service that we had the Carter report. The late Lord Fitt was very frank in acknowledging the shortcomings of NOMS, which have been referred to by other speakers. In the words of the Howard League for Penal Reform, it was marked by,
	"confusion, waste of public money, lack of consultation and secrecy".
	The Howard League said that no proper case for the establishment of NOMS had been made, and that it was therefore no surprise that the latest proposals were a reversal of the position previously adopted at the time of its institution.
	Several speakers have mentioned the new probation trusts. The proposed transfer of the statutory bodies placed on local boards to the regional offender manager—a civil servant—would not further this aim, and would sever the existing statutory requirement for a member of the probation board to have links with the local area. It certainly flies in the face of the Government's declared policy of devolving power back to local communities. It was interesting to hear the noble Baroness, Lady Stern, talk about the plans for the Scottish arrangements for offender management—local bodies, locally accountable.
	The Howard League for Penal Reform has drawn my attention to the omission in the consultation paper of the word "magistrates". This is an extraordinary omission, given their central role in imposing short prison sentences and the bulk of community penalties. The experience of the National Probation Service is that the more remote a court feels from its local probation service, the less likely the court is to trust its views. If this means an increase in short prison sentences at the expense of community penalties, not only does it fly in the face of the whole ethos of the probation service, but it undermines further the purpose of NOMS—to reduce reoffending.
	In all this, we must not ignore the effect on staff morale in the existing service. Small things so often tell us so much. A briefing from Napo reminds me that in the consultative paper all references to the Prison Service are in upper case while references to the probation service are in lower case. It is not difficult to share the feeling of the staff concerned that that service is being phased out. Having said that, I find the remarks on this made by the noble Lord, Lord Birt, reassuring as he was part of the creation of NOMS.
	If these remarks are all negative, I should say that there have been many criticisms of NOMS in the course of this debate, not least from me. But the debate has been marked by many constructive contributions which, with the expertise available among your Lordships, are so valuable a feature of this House. I was particularly impressed by the window of opportunity in the present staffing arrangements of NOMS outlined by the noble Lord, Lord Ramsbotham, and by the visionary speech made by the noble Lord, Lord Filkin. I know he will be welcomed by my noble friend Lady Thatcher as a late convert.
	The Management of Offenders and Sentencing Bill, which passed through your Lordships' House in February 2005, never saw the light of day in another place. Since then there has been much discussion, and this debate will be an important feature of that. We also await the findings of the inquiry into the apparent failure of the service in the light of the murder of John Monckton. My party awaits those findings with considerable interest before formulating its final approach to the present proposals. In the light of all this, I look forward to the Minister's reply.

Baroness Scotland of Asthal: My Lords, I also thank my noble friend for giving us this opportunity for an excellent debate. All the speeches have been powerful and showed real commitment and deep interest. I particularly thank my noble friend Lord Filkin and the noble Lord, Lord Birt, for setting out so graphically some of the history, philosophy and vision because that will enable me to concentrate on some of the other issues. I also particularly thank the noble Lord, Lord Dholakia, for outlining so clearly why the aspiration to create a national offender management system which will reduce re-offending is so important and the role that the voluntary sector should properly play in it. I take this opportunity to reassure him that the policy which the Government have adopted on supporting the voluntary sector will remain. The three-year provision is critical. I also thank the noble Viscount, Lord Bridgeman, for indicating that his party is not at the moment at least implacably hostile to the proposals and will await with interest how they develop.
	It is true that we are at a critical point in our plans for transforming how we manage offenders. We will shortly be publishing our reducing re-offending five-year strategy and our Bill that will include proposals to enable us to implement the necessary structural changes in the way that probation services are run. That will be after the most careful consideration of the results of our consultation on the future of the probation service. I reassure the noble Lord, Lord Ramsbotham, that with every day that passes I do nothing other than think, think and think again. He does not have to exhort me to do it; it is a constant state of being.
	We have had a large number of responses to that consultation and I think that it would be wrong for me to pick out any individual. What I can say to noble Lords is that there has been a wide spectrum of views and all those views need to be considered and fed into the response that we will make in relation to them.
	We have made enormous progress in recent years to raise standards in our management of offenders. I particularly thank, therefore, the noble Lord, Lord Elton, and the noble Earl, Lord Listowel, for so generously acknowledging the chances that have been made. But I would also emphasise that although the Government have provided the resources and the structure for that change, that change has been delivered by the professionals on the ground, working with great energy and great commitment with the offenders themselves. So credit must be shared in that regard. Both the Prison Service and the probation service deserve great credit for that. But we need to do much more. That is the real answer that I give to my noble friend Lady Gibson in relation to how far there is to go. We need to do more because the figures on re-offending cannot give us any comfort at all. My noble friend Lady Massey is right in saying that we still have a long way to go.
	Our challenge is simple. It is to reshape the system to make sure that time in the criminal justice system is as effective as possible at turning lives around and stopping people offending again rather than acting as a brief interlude in a criminal career. The focus of the new offender management services should be on tackling the linked factors that make offenders more likely to commit crime. Many noble Lords have outlined those and made reference to them—not least my noble friend Lord Filkin, the noble Lord, Lord Birt, and indeed the noble Lord, Lord Dholakia.
	We should have a system that does not just provide a set of services based on what has always been provided before. Our system needs to start with an excellent assessment of the offender—the risks that they pose and the factors that have influenced their offending and may again in the future. We also need to introduce more flexibility about who provides what, making the system work better to target individual offender's needs and reduce their offending. It will allow us to focus on the particular needs of groups within the offender population. That will allow us to play to the strengths which different providers can bring—and history has told us that we need the contribution of all if we are to succeed in making the changes we must make if we are to reduce re-offending.
	The key part of our proposals is that the national offender manager and the 10 regional offender managers will be commissioners of services for offenders and will be accountable through the chief executive to Ministers for reducing their re-offending. That is why it was correct that the noble Lord, Lord Dholakia, my noble friend Lord Filkin and others emphasised this need for accountability. They will be responsible for mapping out the services that are needed for the offender in order to divert them away from offending, and for putting together contracts with a wide range of different partners who can best meet those needs. Often, contracts will be with the Prison Service or the probation service; but where others can do the job better, they will get an opportunity so to do.
	Regional commissioning will marry the benefits of flexibility with good planning and the ability to contract for services that cross boundaries—for example, a programme of drug treatment that can be provided to an offender both while he is in prison and once he is released. That sort of continuity is something which the service may find difficult but which the offender may find a necessity.
	To reduce re-offending we need effective, targeted and consistent offender management so that offenders are managed in a consistent, constructive and coherent way during their entire sentence. A single named offender manager will be appointed for each offender, working with them throughout their sentence both in custody and in the community to assess accurately their needs. That will improve the selection, sequencing and targeting of interventions for each offender.
	Advancements in IT will underpin and support the work of offender managers and help us better to share information about offenders wherever it is needed across the whole of the criminal justice system. In addition, we expect the operational efficiency gained by their introduction to allow us to reinvest savings in front-line service delivery.
	Our plans for the reform of offender services are about delivering better services to achieve a reduction in re-offending and are incentivised by a more flexible, reactive and locally appropriate approach. There is nothing in our plans that would undermine the essential nature of local delivery.
	So, hand in hand with establishing a commissioning regime, we want to make services more contestable, to check which supplier offers best value and drive up performance all round to encourage innovation and to make sure that we are engaging the best providers at a time when there are more demands than ever on those managing offenders in the community.
	We need to be frank. We do not currently have the number of interventions that we need to make the necessary difference. That is an area that must be grown. We need legal change to set up a full commissioning regime across prisons and probation under the regional offender managers so that they can directly commission joined-up offender management services. We have consulted on proposals to give the Secretary of State the statutory duty to make arrangements with others to provide probation services; and to create new bodies, replacing local probation boards, with whom he may contract. We will be introducing legislation shortly.
	I should make it clear that, contrary to the fear of my noble friend, this is not privatisation. We want to get the best possible service and the best possible value for money. Contestability should not be seen as a threat. Probation has the greatest opportunity that it has ever had to make a contribution in that regard. I should also say something about the pace of change. It will not be sudden. It will be measured and carefully thought out, and there is a lot of preparatory work to be done before we can begin the process.
	Our proposals will enable a new form of partnership. It is not true that competition will destroy partnership. On the contrary, it will create the climate in which a variety of different bodies from the public, private and voluntary sector collaborate to provide different but complementary services to offenders. That approach will play to the strengths of the different sectors. Our proposals should therefore not be seen as a threat to the National Probation Directorate staff who will continue to be the valued backbone of our staff. We take very seriously the comments made by my noble friend about morale and our aspiration is to ensure that staff remain in good heart, because they should have confidence about what they are about to achieve.
	Between 1997-98 and 2005–06, the probation budget has risen by 45 per cent in real terms. The number of staff now employed has risen to 20,000 from 14,000 over the same period, which is a rise of 44 per cent. Those figures continue to rise. Our commitment to the probation service should therefore not be underestimated. We value the skills and professionalism of those working in the probation services and encourage others to join.
	On the point raised by my noble friend Lady Massey, drug treatment will be provided alongside the national framework of care involving the Drug Intervention Programme, the National Treatment Agency, the prison and probation services and the National Offender Management Service. That framework aims to deliver an end-to-end approach for the continuity of care of the drug-misusing offender, including addressing individual needs for education, training, treatment, employment and health—including mental health and housing.
	Meeting the healthcare needs of offenders remains the responsibility of the Department of Health, and drug services for offenders are not commissioned by the regional offender managers. They will, however, be working with partner agencies to ensure effective commissioning that reduces re-offending by meeting offender needs.
	The National Probation Directorate will continue to be the principal deliverer of offender management services in the community, especially for the most dangerous offenders. I say that in the hope that I can reassure the noble Baroness, Lady Stern, that her concerns in that regard need not be as soundly based as she fears that they are.
	The National Probation Directorate is leading a robust programme to improve the management of risk of harm issues. A project board is overseeing a detailed improvement plan that has been agreed with Her Majesty's Inspectorate of Probation. This includes a focus on achieving the new target that 90 per cent of risk of harm assessments, risk management plans and OASys sentence plans on high-risk offenders are completed within five working days of the commencement of the order or release into the community. A revised version of the risk of harm manual is being prepared for circulation before April 2006. So the National Probation Directorate is providing strong leadership to ensure that chief officers prioritise work with high-risk offenders. Areas will be expected to give full support to local MAPPA.
	Partnership to reduce re-offending is at the centre of our plans. In November, I announced a package of new initiatives designed to increase the involvement of a wider cross-section of society in reducing re-offending. Therefore, I was pleased to hear the emphasis that the noble Baroness, Lady Howe, put on the role and involvement of business and what was said by the right reverend Prelate the Bishop of Exeter who expressed such warm support for the alliance and the important role being played by community chaplaincies. As noble Lords will know, the corporate alliance will work with employers from the private, voluntary and public sectors, to encourage more employers to take on offenders.
	The civic society alliance is about building on our relationships at a local level with local authorities, organisations and people who can help us to find homes, jobs and support for ex-offenders. The faith, voluntary and community sector alliance will build on the good work already under way, such as the many volunteers and mentors working with offenders in prison and local communities. The local focus will be very much there.
	We need to make sure that we move forward together with our key stakeholders. The alliances give us a framework to mobilise a whole range of people and will be taken forward as an integral part of reducing re-offending strategies at a national, regional and local level. I have seen many inspirational examples of excellent partnership working across the country. We understand the benefits that we have derived from coterminosity in the local criminal justice boards. We understand that that must be preserved. Noble Lords will know that we will have to change in part because of the new arrangements that will take place for the police.
	In November I also set out the way forward over the next 18 months for the cross-government National Reducing Re-offending Delivery Plan, which defines seven pathways out of re-offending. Much has been achieved since the 2004 action plan was published: a third fewer prisoners are discharged without accommodation arranged; more than 10 per cent of adults now gaining basic skills qualifications do so from prison; and 40 per cent more offenders leave prison with a job to go to. With the launch of community payback, communities have the opportunity to have some input into the type of work that offenders carry out in their neighbourhoods. Its aim is to make unpaid work performed by offenders more visible and more representative of the communities' needs. As well as carrying out the work, offenders acquire skills which are useful in the job market. The local flavour will thereby be retained.
	Partnership also means the National Offender Management Service working in collaboration with the rest of the criminal justice system. Examples of recent progress are that more victims are seeing their offender brought to justice, with 14.9 per cent more offences being brought to justice compared with two years ago, and declining public confidence in the criminal justice system has been reversed and has improved by four percentage points in the past two years.
	The NOMS and Youth Justice Board approach to communities and the civil renewal initiative was also launched in November—an issue which I know the noble Earl, Lord Listowel, the noble Lord, Lord Elton, and others have very much welcomed. NOMS and the Youth Justice Board will aim to promote effective use of community engagement throughout adult offender management and youth offender teams, building on the many examples of good practice that already exist.
	I know that the noble Lord, Lord Ramsbotham, said that we need accountability for the different sectorial elements. In particular, he mentioned women. We are determined to ensure that in delivering interventions and services for offenders we respond to the needs and characteristics of women in the criminal justice system. We have done that over the past 10 years in a fairly clear and dramatic way. To tackle women's offending specifically, we are taking forward the Women's Offending Reduction Programme. It focuses on improving community-based responses to the factors which affect why women offend and encourages greater use of community sentences for women offenders rather than short prison sentences. All this gives us an opportunity to focus on the issues.
	Our plans, which will be outlined in the forthcoming Bill and in the five-year plan, will allow us to commission services according to need and from the most effective provider. They will make a reality of end-to-end offender management by commissioning services across geographical boundaries—

Baroness Stern: My Lords, I wonder if the Minister will be able to respond to the question put by my noble friend Lady Howe and I about whether judges and magistrates are favourably disposed towards these reforms.

Baroness Scotland of Asthal: My Lords, I answered that by saying that we have had a large number of responses and that those will be considered. They have come from judges, magistrates, individuals and the unions, thus covering a very broad spectrum. In our response to the consultation we will of course refer to those in full. I hope that I have now spoken sufficiently clearly and that the noble Baroness can hear me.
	We have heard real agreement in this debate on what is needed. We all agree that the national offender management approach would be the right one, and the question is how do we do that and what about the detail: why the change? I have to say to noble Lords that because we have listened to what has been said by practitioners and others, we have moderated the ways in which these matters are being brought forward. I can assure noble Lords that we will take very seriously indeed the consultation process in which we have been engaged. However, we have found ways to deliver services and we need to continue to find better means so that we can interrupt offending patterns of behaviour.
	My right honourable friend the Home Secretary recently stated that his purpose is to put the reduction of re-offending at the centre of correctional services. I am much encouraged by the fact that all speakers who referred to his Prison Reform Trust speech have done so in warm terms. I was extremely proud that we were able to express our joint vision for the future in a way that has connected so powerfully with those who have had the opportunity either to listen to or read that speech. It encapsulates the aspirations that Ministers jointly hold in relation to the future.
	I thank all noble Lords who have engaged in the debate, one which has rightly drawn attention to the importance of the National Offender Management Service and its impact on the criminal justice system. I hope that we have demonstrated not only that we are attentive to these issues, but also that we have in place key programmes of activity, each of which will produce far-reaching change to alter things for the better as part of the drive to reduce the scourge of repeat offending.
	I know that my time is up. A number of very specific questions have been put to me which I undertake to respond to in writing.

Baroness Gibson of Market Rasen: My Lords, I thank all noble Lords who have taken part in this debate, which has been interesting and stimulating. As always in your Lordships' House when we hold a good debate, I have learnt a lot.
	I want to respond briefly to two speeches, both made on my side of the House. To my noble and good friend Lord Filkin, I accept the need for change, a point I made in my speech, but it is the way in which the change is being implemented that I have difficulty with. My noble friend comes from his background and I come from mine. I admit to being an old-fashioned trade unionist and I make no apology for that. However, I do not think that I am a Thatcherite, which I believe my noble friend accused me of being. I am sure that the noble Baroness, Lady Thatcher, would agree with me. I really do not think that the noble Baroness would have agreed with my remarks had she been in her place.
	In response to the noble Lord, Lord Birt, I say merely that I am sorry, but I do not accept that broadcasting can be equated with the criminal justice system, and I shall leave it at that.
	I sincerely thank my noble friend. As always, she has given a very full response. I listened carefully and I shall read it in Hansard later. I reaffirm that I agree with the aims of the Government in regard to re-offending but it is the way in which NOMS is being applied that gives me fears. I heard again her pledge that the Government have listened and will continue to listen to the voices raised. I hope, therefore, that they will consider further the fact that the probation service—both its managers and its staff—believe quite genuinely that most of what the Government want can be achieved by expanding and building upon what is already happening. With those few words, I beg leave to withdraw my Motion for Papers.

Motion for Papers, by leave, withdrawn.

Transport for London (Best Value) (Contracting Out of Investment and Highway Functions) Order 2005

Lord Bassam of Brighton: rose to move, That the draft order laid before the House on 16 November be approved [10th Report from the Joint Committee].

Lord Bassam of Brighton: My Lords, I commend to you this order under Section 70 of the Deregulation and Contracting Out Act 1994, as applied by Section 18 of the Local Government Act 1999. It confers on Transport for London powers to contract out its investment functions and highway functions in the same way that other local authorities can.
	Under Section 1 of the Local Government Act 1999, Transport for London (TfL) is a "best value authority", defined as a "local authority" for finance purposes and as a "local highway authority" for road management purposes. "Best value authorities" have a duty to make arrangements to secure continuous improvement in how their functions are exercised, having regard to a combination of economy, efficiency and effectiveness. In meeting this duty, guidance from the Office of the Deputy Prime Minister states that "best value authorities" should challenge why, how and by whom a service is provided.
	Other "best value authorities" outside the GLA group have already been granted powers to contract out investment functions and highway functions through three separate orders made under the Deregulation and Contracting Out Act 1994. These orders are: the Local Authorities (Contracting Out of Investment Functions) Order 1996; the Local Authorities (Contracting Out of Highway Functions) Order 1999; and the Local Authorities (Contracting Out of Highway Functions) (England) Order 2001. This order would allow TfL to contract out the functions that other local authorities may already contract out under those orders.
	While the GLA Act made provision for the Deregulation and Contracting Out Act 1994 to apply to the GLA itself, it did not make such provision for TfL or other GLA functional bodies. This means that TfL is the only local highway authority unable to contract out its highway functions and, unlike all other local authorities outside the GLA group, is also unable to contract out its investment function. Because TfL does not currently have the full range of legal powers that are available to other "best value authorities", it can only discharge its investment and highways functions by in-house staff and is consequently restricted in its ability to pursue alternative means of discharging those functions.
	Local authorities have been granted powers to contract out investment functions so that they can call on the expertise of specialists with the necessary experience, systems and understanding of the market, making them better suited to ensuring optimum return for investment. TfL's inquiries with brokers indicate that it could achieve higher returns than is currently the case through outsourcing parts of its investment functions, while keeping risks at a similar level to investment managed internally.
	Similarly, TfL cannot contract out its highway functions in the same way that local highway authorities can. TfL is responsible for maintaining the 580-kilometre Transport for London road network and traffic control equipment within the GLA boundary. It cannot currently contract out highway functions that it considers contractors are better placed to manage at greater value for money. It is also unable to compare in-house operations with external arrangements, as encouraged by best value guidance.
	We have carried out extensive consultation on these proposals among a range of stakeholders. This exercise revealed no strong opposition to granting TfL these powers, beyond the importance of TfL demanding similar standards from contractors carrying out its highway functions to those it would expect from its own staff. I agree that this is important, but feel confident that Transport for London is well placed to manage this issue.
	Under these arrangements, TfL would retain responsibility for the discharge of its highway functions and would thus continue to be accountable for the work carried out by contractors acting on its behalf. Other local highway authorities have used powers to contract out highway functions effectively for many years, including provisions within contracts to manage both quality and response time standards to satisfactory levels. I do not believe that there are any legitimate reasons to treat TfL differently from other local authorities in these respects.
	The arrangements set out in the order will enable TfL to better pursue its obligations as a best value authority and should enable it to achieve greater value for money in arranging for the execution of its highway functions and of its investment functions.
	As noble Lords will have noted from the title of the draft order, we had originally intended for the order to be made last year. This was not possible, due to parliamentary time constraints. Should noble Lords agree to approve the order, as I hope they will, the year cited in the title shall of course be changed to 2006. I commend the draft order to the House.
	Moved, That the draft order laid before the House on 16 November be approved [10th Report from the Joint Committee].—(Lord Bassam of Brighton.)

Baroness Hanham: My Lords, I thank the Minister for having brought the order to the House. Let me say at the outset that I have no objections to it. I am fascinated, of course, that Transport for London has suddenly become a local authority, even if it is in some rationalised terms, but I think that many people would dispute the fact that it can be considered as such.
	I have just two questions for the Minister. Local government is required to have an investment panel of councillors and independent members to manage investors, to see that investment managers are chosen, to have beauty parades from time to time, to make sure that the investment managers are changed and to be sure that the arrangement between investment managers and fundholders does not become too cosy. In the light of the make-up of Transport for London, how will this be done to ensure reasonably independent scrutiny?
	Secondly, will Transport for London be subject to the same rules of contract regarding competition, the length of contracts and the review of contracts? Again, it falls back on who will be making the decisions on this matter and who will be the independent scrutineers to make sure that things do not become too cosy. If the Minister replies to those questions, for the rest, I have no objection.

Baroness Harris of Richmond: My Lords, I, too, will be mercifully brief. I thank the Minister for bringing the order to the House. As I understand it, both the London Assembly and Transport for London say there is nothing to say about this order. It is simply there to bring Transport for London in line with local authorities as far as best value on transport procurement is concerned. The position of TfL is often anomalous in legislative terms as it is neither fish nor fowl—not a local authority but carrying out many of the functions carried out by local councils elsewhere. These Benches support the order.

Lord Bassam of Brighton: My Lords, I am most grateful to both noble Baronesses who have contributed to this very short consideration of the order—hardly any time has elapsed. The noble Baroness, Lady Hanham, made an aside about the definition of local authorities seeming to cover TfL. The definition of a local authority under the Deregulation and Contracting Out Act 1994 does not, strictly speaking, include TfL. However, as I think I made clear in my observations, by virtue of Section 1 of the Local Government Act 1999, TfL can be a best value authority, and I suppose we should all be very grateful for that.
	The noble Baroness, Lady Hanham, asked a couple of questions, which I may be able to answer. Independent scrutiny arrangements are approved by the Audit Commission through initial performance assessments carried out on a periodic basis. I think that is how it is envisaged that there will be this careful consideration on investment matters. I see that the noble Baroness is shaking her head and I must say that I am not entirely satisfied that that answer is as full as it should be. I will drop the noble Baronesses, Lady Hanham and Lady Harris, a note so that they can have the benefit of a fuller response. I would anticipate that there ought to be some independent scrutiny in this area because, as the noble Baroness, Lady Hanham, said, we cannot afford to have an overly cosy relationship in these situations. In essence, this order is about ensuring that we get good value for money throughout when contracts are put out so that we can match and evaluate in-house with external arrangements and get the best possible deal for the public, because that is what we are after.
	Having made that commitment to write to the noble Baronesses, I trust that the House will endorse this order.

On Question, Motion agreed to.

EU: Belarus, Moldova and Ukraine

Lord Ponsonby of Shulbrede: rose to ask Her Majesty's Government what is their policy towards developments in the European Union's relations with Belarus, Moldova and Ukraine.
	My Lords, the purpose of this debate is to look at how relations are developing between the European Union and Belarus, Moldova and Ukraine. It is about two years since I last held a debate on this topic and I welcome my noble friend Lady Royall to this rather select group of Members of this House who take an interest in these matters.
	When I re-read my speech of two years ago, I was reminded that the whole debate was coloured by the fact that Russia had just cut off the gas supply to Belarus in a dispute over pipeline tariffs. Now, of course, we have the ongoing dispute between Ukraine and Russia about essentially the same issue and this only emphasises the point that I made in the previous debate that, while we may choose to debate Belarus, Moldova and Ukraine, Russia is a huge consideration. Russia's relationship with those countries and with the EU tends to colour the whole debate.
	Nevertheless, it is useful to look at these countries on an individual basis. They are Europe's closest neighbours and, inevitably and rightly, they have risen up the political agenda since the EU was expanded. It is no surprise to anyone that the new members want to ensure that the EU prioritises its developing relationships with Belarus, Moldova and Ukraine.
	I will deal first with Belarus. Belarus is a country with no ambitions towards European Union membership. With Belarus, the same old issues come up again and again—fraudulent election results, repression of NGOs, and past political figures who have disappeared. Sadly, there are new restrictions placed on current political figures who I shall name here tonight—the former Prosecutor General and current head of Presidential Administration, Victor Sheiman; the Minister for Sports and Tourism, Yuri Sivakov; and the Minister for Internal Affairs, Vladimir Naumov. I find it is depressing that the leadership in Minsk prefer to live in a kind of Cold War aspic where they are very certain of who their enemies are but uncertain of their own future, rather than a world where they can embrace the opportunities for creating a society that sits comfortably with the international standards of human rights, democracy and the rule of law.
	However, I want to say something positive about developments in Belarus over the past couple of years and argue that, despite this lack of progress, it is worth us persisting with a policy of selective co-operation with the authorities in Minsk.
	I am a patron of a British charity called Leaves of Hope, which operates in the social and health fields in Belarus and which has taken a number of initiatives from the introduction of a fostering system for children to taking disadvantaged youths from Cardiff and driving them all the way to Belarus, which is a long way to drive. The charity has pursued a number of initiatives over a number of years and, so far as I am aware, has had complete co-operation from the Belarusian authorities to the extent that national laws have been changed and amended to accommodate some of the initiatives that have been introduced. I am thinking particularly of the field of fostering of children. To me, that is a positive example of Belarusian willingness to look constructively at alternative methods of addressing social issues and, in some cases, changing the old Soviet system, where they are persuaded of the benefits.
	The second positive example is the development of the Belarusian economy itself. I realise that understanding the Belarusian economy is something of a black art; nevertheless, the authorities claim that their economy is growing at least as fast if not faster than that of many countries in the region. That is almost certainly a knock-on effect of Russia's economic progress due to the higher energy prices, but it is progress that is being claimed by the authorities in Minsk.
	When I meet Belarusian officials, they never lose an opportunity to talk about their economic ambitions and particularly their trading ambitions with the European Union. That presents an opportunity for the European Union to show what those opportunities are for Belarus and to show the Belarusian authorities that we are serious about human rights, democracy and the rule of law. Many people who I meet in Belarus understand that; they understand international standards, our common standards, and they understand that this presents an opportunity for the Belarusian people themselves. But unfortunately the leadership—and I mean the very top of the leadership structure—takes a more isolationist approach.
	I know that our Government are looking to support civil and democratic forces in Belarus, and that the presidential election in March will be an opportunity for the Belarusian authorities to demonstrate some willingness to support democratic forces and the rule of law. Nevertheless, we should not expect too much in reality and, whatever the results, we should continue to work with civil society, as the current regime will not be in place for ever.
	I turn to Moldova, where I know that there is a new parliamentary group to be set up by my noble friend Lord Dubs. Noble Lords will be aware that Moldova is the poorest country in Europe and that in 2001 it turned back to the Communist Party. A Communist president was re-elected in March last year. Moldova will be a new neighbour of the European Union when Romania joins in the not-too-distant future. The Transnistria conflict remains frozen; fortunately, Ukraine is taking a more active interest in the negotiations, together with Russia and the EU, and various initiatives are under way. Where are we on those negotiations—and is the idea of putting in some EU troops in the form of peacekeepers or in a monitoring role still being actively discussed?
	The EU is trying to export stability to countries such as Moldova, and it is rightly conscious that if it does not export stability it will import instability. To some extent, that has happened already. The population of Moldova has reduced by some 15 per cent in the past 10 years, and there are now substantial Moldovan populations in Portugal and Greece. Of course, the main reason for that is the desperate poverty in Moldova. These migrations present a real problem for the EU member states to try to reverse the trend—and I believe that the noble Lord, Lord Hylton, will say more about that in his contribution.
	In Ukraine there have been the greatest political changes since my debate two years ago, with the Orange Revolution. However, many of the underlying economic and environmental challenges remain as intractable as ever. Ukraine may have a flawed legal system and economy, but there is no doubt that it has a vibrant democracy.
	There is no doubt that the Rada, the national Parliament, forms a national focus for political debate—which sometimes might take the form of gridlock, or might be a way of expressing dissatisfaction—that cannot be claimed by many other countries in that region. Ukraine is a large and important country within greater Europe, and the EU is rightly pursuing a number of initiatives with it, all, I hope, building towards EU membership some time in the future. Ukraine has made its choice, and the EU has a responsibility to respond to that choice. There are negotiations on WTO accession leading to a free trade agreement with the EU, which are substantial goals, and can offer both parties benefits.
	Around one-third of Ukraine's trade is with the EU, while in percentage terms the EU's trade with Ukraine is insignificant. That might tempt some people to say it is not a particularly important issue, but of course the reverse is the truth. The success of Ukraine matters hugely to the stability of the region as a whole, and it is my perception that the UK is in a particularly strong position to direct the debate within the EU about how the relationship with Ukraine will develop.
	I want to mention gas pipelines, since they have coloured the national news so much in recent weeks. I alluded to the fact that they were in the national news a couple of years ago, although in a more minor way. I want to say two things, which I hope are not stating the obvious, as I think they are important for context. First, there can be no doubt that Russia has a competitive foreign policy regarding the gas pipeline supply situation, and it is adjusting its policy on that basis.
	Secondly, as with all political and economic issues, short-term issues totally eclipse the long-term considerations of gas and oil pricing. In the short term the massive increases in gas prices are, as we know, impossible for the Ukrainian authorities to accept, but in the long term it is desirable that the Russians move away from their differential pricing of oil and gas resources. Some noble Lords may know that my professional life involves this aspect of the oil and gas business, and I can say to the House that differential prices between the near abroad, the far abroad and the international, as they refer to them, provide a huge incentive for corruption and a huge disincentive for industrial reform. It really is in everyone's interest that in the long term we move towards competitive oil and gas pricing. I have heard no real argument against that in eastern European countries. The political debate is about the rate of transition to the market-based oil and gas prices, and that rate provides Russia with an opportunity that they have not been slow to exploit.
	I conclude by saying that, when I was preparing for this debate, I received a couple of unclassified briefings from the Foreign Office. A couple of years ago there was a "new neighbourhood" policy. It now seems to be done in a more piecemeal fashion as the countries are developing at different speeds. That is the right approach, and I trust that our Government will take a greater interest in these matters as they move up the political agenda.

Lord Howe of Aberavon: My Lords, I begin by thanking the noble Lord for enabling us to discuss this subject; indeed, this complicated set of topics. He closed by dealing with the energy market aspect, something I do not propose to deal with, but it is illustrative of a very important issue.
	I propose to focus mainly on the implications of developments in and around Ukraine not just because it is, as the noble Lord said, a large and important country—which it certainly is—but also because it is the country of which I have had most experience in the past decade or so. I am deputy chairman of the all-party group and spent seven or eight years, together with the noble Baroness, Lady Williams of Crosby, on the advisory council of the Supreme Rada—years that proved increasingly fruitless and barren.
	I am talking not just about the implications for Ukraine but the wider ones because there are very important implications of our and their handling of relations with Russia, not just, as the noble Lord pointed out, on the part of this country but throughout the European Union. It is one of the many issues that need and deserve consideration on a Europe-wide basis rather as Mikhail Gorbachev would have foreseen when he talked about our common European home. So it is a good reason for persisting in the pursuit of European common policies as far as possible but not in any way to exclude the interests of the United States and our North American partners, which are obviously substantial. Indeed, it is important to maintain a common view on both sides of the Atlantic. Different issues are of more importance to one than the other. For Europe perhaps gas is at the top of the list; for the United States perhaps it is counter-terrorism. The difference in our interests should not lead us to differences of policy, rather the reverse.
	As for Ukraine itself, my last visit there was some 18 months ago in the summer of 2004. I visited with several colleagues from the all-party group. As the noble Lord pointed out, the situation has improved enormously since then. Those were the dying days of President Kuchma's presidency. The victory of President Yushchenko in what is known as the Orange Revolution has effected an enormous change. It signalled the arrival of reformist European-minded leaders with respect for honest democracy, the rule of law and economic liberalism. That is true not just of President Yushchenko himself, who at one time suffered harsh hardship because of his belief in those principles but also, at least in some respects, of his two Prime Ministers, Tymoshenko and Yekhanurov. However, they face difficulties like some other former authoritarian states that formed part of the Soviet Union. In many ways their constitutions were designed, unintentionally, for conflict. A rather rigid adherence to the division between executive and legislature for an immature country was almost a prescription for deadlock. Not just Ukraine but other countries from the former Warsaw Pact bloc have learnt how democracy enables a country to change its government, which is quite important. But democracy has other purposes than that. They have not learnt the need to establish continuity notwithstanding a change in government. Sometimes we make the same mistake.
	For those reasons it is important for the European Union to keep its door open, for Ukraine to have the prospect of joining at some date in the future. That may be the best incentive for it to persevere, through a democratic system, with the difficult but necessary economic reforms which are still going ahead. There was important progress during the United Kingdom presidency marked by the Kiev summit on 1 December when Ukraine was granted market economy status and negotiations were opened on many other important issues. There are a number of other advantages of the association with Europe—market liberalisation and, beyond, honest government. I give the following example. At the request of the presidents of Moldova and Ukraine there has been established the EU Border Assistance Mission, which we hope will offer potential help in the settlement of the Transnistria conflict, to which the noble Lord referred. In a different way, the example of the market economy and its application since the Orange Revolution has enabled, for example, the resale of Ukraine's largest steelworks at Kryvorizhstal to the Mittal group last October for $4.8 billion, six times the price raised from the previous purchaser in the Kuchma-era privatisation. That is one of the advantages of a more open and honest pattern of government.
	Most recently, as the noble Lord pointed out, those advantages have been overshadowed by the gas conflict. The most worrying feature of that conflict is not the fact of commercial disagreement—in the end the markets will have to resolve that in different ways in price changes—but the political element in the way in which Russia appears to have conducted the negotiations, indeed, some would say with political ruthlessness at one point. It is not time to speculate about the nature and extent of the changes that are taking place in Russia; but there can be no doubt about the increasing authoritarianism of Putin's presidency. Is that due to careless or recklessness, diversity of authority or ruthlessness? One can come to only one conclusion about that, underlined by the resignation from the Kremlin of Andrei Illarionov, once a key economic adviser to President Putin, who felt that he had to resign because he was no longer able to speak his mind. One can conclude that carelessness is the least likely explanation for the growing authoritarianism.
	It is part, really, of the Russian reaction to a sequence of democratic revolutions which have caused them discomfort: in Kyrgyzstan the tulip; in Georgia the rose; in Ukraine the orange, which have all been greeted without enthusiasm in Moscow. In every case the democratic alliance is, to put it mildly, under pressure. Moreover, authoritarianism is strengthening its grasp rather than weakening it in other countries. The noble Lord has referred to Belarus, but President Putin does not attempt to conceal his sympathy with President Nazarbayev in Kazakhstan, as well as with Lukashenko in Belarus. There are now, in the face of this, some signs of successful pressure being brought to bear even on Russia itself. It is encouraging that the Council of Europe in Strasbourg made representations on human rights in relation to the recent Russian legislation diminishing the importance of non-government organisations, and that some advice at least from the Council of Europe on the shape of that legislation has been delivered and to some extent regarded. Other issues will arise. That is the most important aspect of the debate in the wider setting that we have tonight.
	That tension between authoritarianism and democracy will remain a cause of potential disagreement—even possibly of confrontation—although hopefully and mercifully not of conflict. I hope and believe that it may never become conflict. However, it does require above all sustained collective attention and consideration from the rest of the world; from the European Union and its member states, with British leadership so far as we can give it, and from the whole of the transatlantic alliance, from democratic governments, to keep the pressure in the direction of democratic self-government rather than authoritarianism. Above all it has to come from the European partnership. It also calls for responsible government in Ukraine itself. The recent change of government as a result of the decision of the Rada is a turbulent factor, and as the Times leading article today said, it has some discouraging features about it. The democratic leaders, including most notably Mrs Tymoshenko, one of the key figures, who together played the part that they did in effecting the Orange Revolution need to understand the folly of risking the destruction of the democratic framework that they helped to create, if they do not pay attention to the need for continuity and stability on a democratic foundation in that country. We need to do everything that we can to support that foundation for a country that is of importance to us beyond many people's understanding.

Lord Giddens: My Lords, I too congratulate my noble friend Lord Ponsonby on initiating this debate on a region that is so important to the future of Europe, and which has a wider geopolitical significance. It is a shame that so few noble Lords seem to agree. This is one of those debates where there seem to be as many Ministers and shadow Ministers as there are ordinary punters, especially as I am not sure that I could define the noble and learned Lord, Lord Howe, as an ordinary punter.
	About a year ago I was in an airport looking for a book to read on a long-distance plane journey. I came across one by the author Tony Hawkes. I do not know if other noble Lords will have seen it—Playing the Moldovans at Tennis. Tony Hawkes made a bet when he was drunk that he could beat each of the Moldovian football first team at tennis. He went to Moldova to carry through that bet; he played all members of the football team and, as far as I remember, he ultimately beat them all, showing that being good at one sport does not make you good at another. It is a charming book and I did not find that it in any way patronised Moldova, which has a certain charm. He got to know a family very well and he provides a sympathetic account of the situation and problems of the country. Part of the reason why he chose the title was that Moldova seemed to him an exotic and perhaps obscure country—as it is for most people living in western Europe. That would have been true to almost all of us until relatively recently.
	As we all now recognise, Moldova is virtually on the front line of the European Union and it holds an intense interest for us, as do the other countries mentioned in the title of this debate. At one point they were all exotic to most western Europeans. Eastern Europe used to be in between; but eastern Europe has now become central Europe and therefore the European Union faces a very different geopolitical situation. All three countries are essentially new, dating from about 1991. I am not sure why only those three countries feature in this debate, but the enlarged EU, as we know and as has been mentioned by my noble friend, shares an enormous common geopolitical position with Russia, Georgia, Azerbaijan and even Armenia. Most of those countries are authoritarian or are trying to break away from authoritarian government; none looks especially stable; and they tend to be centres of rather noxious forms of international crime, including human trafficking, the organ trade, money laundering and so on. Yet, they are all looking west.
	In Tbilisi and other Georgian cities the EU flag flies alongside the national flag on public buildings. As the noble and learned Lord mentioned, the country's "Rose revolution" was one of the first in the region and it helped to inspire similar uprisings not just in the Ukraine and Kyrgyzstan but in the Lebanon—which is not too far away in the Middle East. All of that is a reminder of how potent the EU's appeal is. But I must say that the EU's appeal these days seems a bit like the strategies of Don Giovanni, because it has an immense attraction whereby suitors of the European Union will bend every effort to achieve their objective of joining, but once they do so they seem to be much more dismissive and uninterested in what they have achieved. So that appeal has become somewhat paradoxical.
	Belarus, Moldova and Ukraine cannot easily be discussed in one breath because they have quite a lot of differences, some of which have been referred to. Belarus is most closely tied to Russia and there is continuing talk of Belarus joining up again with Russia. I do not think that that will come to anything but certainly Belarus has been most impervious to the EU's charms. President Lukashenko has famously been called by George Bush, and I believe others, "Europe's last dictator". He is the author of several bons mots, including the following in which he told his citizens, "You will live badly but not for long". However, that might be an artefact of translation.
	A whole series of initiatives which have gone on since the early 1990s in Belarus have largely come to nothing on the part of the EU. As has been said, they have included sanctions as well as positive inducements. However, like my noble friend, I feel that the country is unstable. It cannot go on for too long in its current state, and therefore I think that the initiatives, which I shall come to later, should still be sustained.
	Moldova and Ukraine are in rather a different position. I, too, will not talk much about the energy issue, although it is worth recognising the extent of the subsidy which Ukraine received from Russia. According to figures that I dug out, that subsidy was worth about US $3 billion to $5 billion a year. That is more than all the EU aid that has been given to Ukraine over the past 14 years since its independence, which puts the whole thing in a certain perspective.
	The difference is that both Moldova and Ukraine have accepted a framework of agreements with the European Union and are covered by their EU neighbourhood policy. A new EU-Moldova action plan was agreed this year. As has been mentioned, we know that Moldova famously has the lowest GDP per head in Europe, and I think that it has something like half the GDP per head that it had in 1989. It is a heavily agricultural country; nevertheless, it has 99 per cent literacy, and I feel that its economic prospects are not too bad.
	Talking of playing tennis with the Moldovans, I believe that the noble Baroness, Lady Rawlings, was here when we discussed Croatia and Slovakia—two rather poor countries in Europe, neither of which existed until recently. They were both in the final of the Davis Cup, so perhaps the same will happen to Moldova not too far down the line. In any event, I do not think that the prospects for the country are as poor as they are sometimes said to be, and I think that involvement with the EU will be fundamental to its future.
	Of course, Ukraine is the key country because it is larger. It had the famous Orange Revolution. That revolution has lost some momentum and has run into difficulties, but it seems to me to be an irreversible transition. It is important to recognise that Ukraine is a transit country for gas and oil flows from Russia and the Black Sea, and that gives it a large geopolitical significance. It is also the site of Chernobyl, which has still not been fully decommissioned, and other ailing power stations. Ukraine still gets about 30 per cent of its power from those power stations.
	The Ukrainian Government have declared their commitment to join the European Union, and the latest suggestion is that that will happen by 2012. There is an amusing anecdote in the book of the noble Lord, Lord Patten, Not Quite the Diplomat, in which he talks about going to Ukraine. There, they say to him, "If Turkey is a European country, why isn't Ukraine a European country?" The criterion for joining the European Union set out many years ago is simply that a country should be a European country, and the noble Lord, Lord Patten, amusingly documents his stumbling attempts to answer that question. Personally, by the kind of definition that now attains, I think it is irrefutable that Ukraine is a European country.
	That leads me, in conclusion, to suggest a number of questions for the Minister about the Government's policies and orientation towards this new border of Europe and the EU's involvement with it. First, I have a general question that I have asked before, but my noble friend Lord Triesman did not give me a completely satisfactory reply. I support the Government's pro-enlargement policy, which is crucial for the EU. But pro-enlargement inevitably means that the EU becomes a geopolitical actor. It is inevitable that if the EU expands into a completely different region of the world, it must exert influence in that region.
	What do the Government think should be a political project for the EU? It is no use supporting enlargement and supposing that that will transmute the EU into a sort of quasi market—a kind of free trade area. You cannot expand in a way that has clear geopolitical connotations and not supply leadership. That, in turn, means some kind of political co-ordination. We know that our European constitutional treaty has been rejected, but what would the Government want in its place? What would the Government provide in the co-ordination that the EU must have if it is to deal appropriately with such areas? They cannot simply base the matter all on economics and free trade.
	Secondly, with regard to Belarus, I echo the implicit question asked by my noble friend. We do not want to give up on Belarus, but what about giving more support to NGOs and international charities? We know that the situation with NGOs is difficult, but nevertheless they seem to be the organisations likely to have the most impact. Which of those organisations should we be supporting, and how?
	Thirdly, although my noble friend might disagree, there seem to be major problems with the EU's neighbourhood policy. Obviously it is a new policy, so it is relatively early to discuss it, but there is another good quote from the book written by the noble Lord, Lord Patten, when he says:
	"Our partners are welcome to set up their stall in the market place, but not to set foot in the town hall".
	It seems that the neighbourhood policy could easily be said to be fundamentally contradictory. It offers the possibility of association with the European Union but not where that association will be carried through. How does the Minister see that neighbourhood policy evolving in relation to states that have firmly said that they wish to become members of the European Union?

Lord Bowness: My Lords, I, too, thank the noble Lord, Lord Ponsonby, for initiating the debate and asking the Question. The sub-committee of the European Select Committee which I chair has the European Neighbourhood Policy within its remit. Of course, I speak tonight on my own behalf, not on behalf of the sub-committee, but nevertheless I have a number of questions for the Minister.
	The European Neighbourhood Policy objective is to secure peace and stability within the ring of countries that border the new and extended borders of the European Union. It enables the countries to enjoy a close relationship, including economic co-operation, which is delivered through action plans for each country. Among the objectives is creating political and economic reform within the countries concerned.
	It has already been said that the action plans for Ukraine and Moldova have been adopted. They were adopted in February last year. Ukraine has already been granted market economy status, and reference has already been made to the border monitoring machinery between Moldova and Ukraine. There was an EU/Ukraine summit in December, and a joint statement was issued showing the extent of the co-operation between the Union and Ukraine, referring to matters such as the initiative supporting Ukraine's efforts to destroy its stockpiles of small arms and light weapons and the role that the president of Ukraine has played in attempting to reopen the negotiations on settling the Transnistria conflict.
	Ukraine has also been emphasising for some time the importance of the introduction of a visa-free regime. I am sure that the House would be grateful if, on what is potentially a sensitive issue, the Minister could say where we are on those negotiations and at what stage parliamentary scrutiny is likely in connection with that proposal.
	The noble Lord, Lord Giddens, referred to the wish of Ukraine to become a member of the European Union. Rightly, in my opinion—this is stated in the Union's published policy—neither the European Neighbourhood Policy nor the action plans are intended to be a formal precursor to membership, but they do not preclude it. Nevertheless, we need to be extremely careful not to mislead countries such as Ukraine into a belief that membership is in any way imminent.
	European neighbourhood policies affect two of the three countries—and potentially the third—under discussion. It has always seemed to me that these policies are comprehensive, ambitious, and contain precisely nothing that anyone could object to. In fact, perhaps they contain too much. Time precludes me from reading the areas covered in the action plans—I would not be able to address your Lordships on any other issue. Suffice it to say that they range right through political dialogue and reform, human rights, fundamental freedoms, economic and social reform, trade, justice, home affairs, transport, people-to-people contact, public health and cross-border and regional co-operation, to mention but a few. Clearly, we cannot do everything for every country that is the subject of a European Neighbourhood Policy at once. There is a clear case for establishing priorities. If we do not believe that these ambitions can be prioritised, are we satisfied that these important programmes are going to have sufficient funds allocated to them?
	I know that there is now a European Neighbourhood Policy instrument that will replace existing funding such as TACIS. Nevertheless, from whatever source the money comes, the adequacy of the funds is an important question. It is no longer good enough to say that they could all be funded if the European Union budget was radically restructured in respect of the common agricultural policy. That is not going to happen for some time. I say that not as a criticism of the agreement on the budget reached at the end of last year, but as what I believe to be a fact. We must resolve this problem.
	Another dilemma is that, in the context of overall European funding, it is frequently said by those interested in development aid in its classic sense that the EU aid should go to the very poorest nations. Despite Moldova's plight, these three countries may not quite fall into that precise definition in a global context. Nevertheless, peace, security and the aims of the neighbourhood policy, to which I have already referred, are of vital importance in these countries, which are our neighbours and with which we have, and should have, close and friendly relations.
	On Moldova, in the debate on 20 December, the noble Lord, Lord Dubs, referred to Moldova's unusual position because of its close economic and social relationship with Romania, and said that Moldova would be significantly affected when Romania joined the European Union. The European Union has a special representative to Moldova. Are we satisfied that that representative is adequately funded to carry out the work? How does he relate to the action plan and the European Union-Moldova Co-operation Council, which seems to meet infrequently?
	The exception to all of this activity is Belarus. The European Union has stated that contractual relations can only be established when a fair and democratic form of government has been established. Aid is going to certain elements of civil society, but there is little sign of President Lukashenko relaxing his grasp on the country, and Russia is unlikely to encourage him so to do if the consequence of that would be to push Belarus into the arms of the European Union. So I hope that the Minister will be able to share with the House the Government's thinking on how relations with Belarus should be developed. Are we, as the European Union, making the best of the contacts and relationships which exist between that country and our new Baltic member states?
	Other noble Lords have referred to the attitude of Russia, which is clearly crucial. With regard to Moldova, as I understand the position, there is a commitment on the part of Russia to withdraw its troops and munitions from Moldova and to ensure the full withdrawal of arms and ammunition from Transnistria, with their destruction on site, and the withdrawal of Russian forces. Will the Minister indicate the position on that? The last communiqué from the last European Union/Russia summit seemed silent on that point. We need to know our Government's attitude towards Russia on these three countries.
	What position are we trying to persuade our European Union colleagues to agree in that connection? The scope for a common foreign policy on these matters must be considerable. We talk of solidarity within the European Union. Some members from the Baltic States may feel that having achieved European Union and NATO membership, more might have been done on their behalf on the occasions that they have been subject to somewhat hostile comment from a country that clearly even now remains less than convinced of the justice of their independence. Were we to take a similar approach with regard to these three countries and feel that somehow or another representing the case of democracy and freedom is off-limits so far as Russia is concerned, it would not be encouraging for those in those three states who are seeking a new, western dawn.

Lord Hylton: My Lords, I join in the thanks to the noble Lord, Lord Ponsonby, for introducing this debate on a troika of relatively recent new states. I want to concentrate on Moldova as I have visited there almost every year since 1993. Moldova has been described as a mosaic of minorities, but I would add that those minorities have been cemented together by 200 years of intermarriage.
	Your Lordships will know that, politically, Moldova was part of tsarist Russia, went on to be part of Romania and then became part of the USSR. Independence was rather rapidly followed by the internal war of 1991-92, which I would suggest was essentially about power and office—although that may be disputed. There was a good deal of outside intervention in that war which has left a quasi-independent Transnistria. The only good thing about the aftermath of the war has been the excellent ceasefire.
	As has already been mentioned, Russia probably has the greatest influence and strongest weight of any external power, but Russian policy has been characterised over a long period by consistent ambivalence. By that I mean that there has been no formal recognition of Transnistria, but a considerable amount of veiled support.
	One could perhaps describe the aftermath of the Moldovan fighting as one of the most over-mediated conflicts in the world. All this diplomatic and other activity over 13 years has produced no overall political solution, so we are faced by a conflict that continues to be frozen. The moral perhaps is that it is a bad idea to have large and powerful nearby neighbours acting as mediators, which are to some extent in competition with each other, and to have the OSCE trying to do the same job at the same time. The lack of political agreement means that today there are still two armed forces, two currencies, two legal systems, a continuing propaganda war, rather indifferent human rights on both sides of the Dneistr and a good deal of organised crime and trafficking, together with economic failure and rather large debts.
	The noble Lord, Lord Ponsonby, mentioned the important factor of poverty. I would just support that by saying that not only has the total population fallen, but that also many hundreds of thousands of Moldovans each year have to go to other countries in order to earn a living. The result is continued instability and a very poor economic climate for any kind of investment.
	On the role of Her Majesty's Government, will the Government continue to persuade Russia not to intervene in the internal affairs of Moldova and, as was pointed out by the noble Lord, Lord Bowness, honour its obligations under the 1999 OSCE Istanbul agreement? Russia seems to be very keen to join as many international organisations and settings as it can. That may be all very well, but a pre-condition should perhaps be that it brings itself up-to-date on what it has already agreed.
	I would like to make a suggestion on a much more effective way of carrying out mediation. This borrows from what has happened in the former Yugoslavia. I suggest that we need in-country a high representative of some supranational body. I do not think that the EU is the appropriate international body, but the OSCE might be. Any high representative might be given really strong powers to protect all the various minorities, to supervise economic reintegration and to help with the drafting of a new constitution, which has already been endlessly discussed; and perhaps he should also have the power to dismiss and replace corrupt and incompetent officials.
	It is desirable in the medium and long term to end up with a state which is capable of freely associating both with the European Union and with a commonwealth of independent states. Internally both sides of the divided country will have to be persuaded that they share a possible and as yet not achieved common good. Just condemning each other is simply not good enough. I would also suggest that unrecognised entities claiming to be states cannot continue for ever. Therefore, a sunset clause would perhaps be helpful, particularly for current office holders.
	Perhaps I may finish on a lighter note by saying to the noble Lord, Lord Giddens, that just about the only integrated institution in Moldova is the national football team, which draws from both sides.

Lord Dykes: My Lords, it is a pleasure and a privilege to follow the speech of the noble Lord, Lord Hylton. I have a sad confession to make: unlike the distinguished five contributors to this very interesting debate so far, I have not had the pleasure or honour of visiting any of the three countries. So, although I am winding up on behalf of these Benches, I fear that it is in a very unprofessional way. I hope that the House will forgive me for that.
	Continuing the allusion to Don Giovanni mentioned by the noble Lord, Lord Giddens, it struck me that one may thematically continue into that dangerous and difficult territory. I recall a black and white film scene many years ago, when Bob Hope was in an African safari tent in a bath tub, having his shoulders massaged by Anita Ekberg. His good line after that was, "When I have finished this bath, I will go to the drug store tomorrow to get some ugly pills". Is the European Union perhaps in the condition that that would be a way to dissuade people from wanting to become members in due course?
	There is inevitably a rather agonised argument in all countries in the European Union now—for which no member state needs to apologise, although it is frustrating to countries still thinking about joining in future. After the big absorption of the 10; the recent agreement to allow Romania and its neighbour to join as well; and then to open talks with Croatia and Macedonia, implicitly leading to future membership, it would be unfair to cast a dark shadow on the possibility of other countries joining.
	However, equally, at the summit in mid-December, there was an agreement among all the leaders that the Union would rightly pause for a moment to think about the future, how enlargement would shape up and what should be the agenda. If, in the end, that produces a renewed élan in the European Community, that is a very good thing, because there is a fear that the European Union will run out of steam and just add on a few more trading entities, but not much else. That would not be right, especially for those of us who do not want to see the United States as the sole, exclusive representative of Western world power in the world. There are many other reasons for that. The European Union must be an equal partner in that sense, which is, presumably, another reason why more and more countries want to join
	In the limited time available, I therefore, with less expertise than other noble Lords, make only one or two comments. However, that is a reasonable point to make. Perhaps the public generally in the European Union feel that the Ukraine is the most suitable candidate for various reasons, not least because it is a large country, so the trading and economic opportunities are bigger, but there are many problems and questions there. The defence equation and military equipment questions that arise from such an idea are also important.
	In congratulating the noble Lord, Lord Ponsonby of Shulbrede, if he is to continue to raise this interesting subject every two or three years, as he seems to have done so far—I think that this is the second occasion—if the House authorities also thought that it was a good idea and sufficient initiatives were taken by individual Members of the House, we might have separate debates on each of those three countries. It is a problem putting them together, notwithstanding their obvious historical links, their close geographical proximity and the rest of it. Hesitation arises from the sudden increase in size of the European Union in recent times—although, as we know, it has resulted in only a 4.5 per cent addition to GNP, which must also be borne in mind. There are reasons to be circumspect about the future structure of the Union, its objectives and ambitions and how it will welcome additional applicants in the longer term future than the immediate horizon.
	As the debate showed, that does not apply to Belarus, for obvious reasons. That is a closed and unattractive totalitarian regime, which is often attacked by parliamentarians here and by many members of the US Congress. I do not know personally, and I do not think that the House knows generally, exactly what will happen in Belarus. Will opposition develop in future? Would the regime have collapsed a long time ago without Putin's support? Many people think so, but there is a lot more water to flow under the Belarus bridge.
	The Economist of 17 December stated:
	"Life is bleak for beleaguered democrats in Belarus. The country's autocrat, Alexander Lukashenka, has put tight controls on the media, rigged elections, torn up the constitution and sent opposition activists to jail, exile"—
	or perhaps worse.
	"Now a new law on public security will make it a criminal offence to 'discredit Belarus's standing abroad'".
	So the signs are very unpromising. At the moment, one literally has to leave it there and see more indications from Belarus of its serious intention to come into the comity of civilised countries.
	With Moldova the situation is totally different. Despite its perhaps lagging economic development, referred to in the debate, in many ways its prospects psychologically, politically and economically can be much better in the future. That is a classic example of where the European Union should help a country in that condition, without interfering in detail internally and only if the country wishes that to happen.
	Manifestly, the formation of the all-party group—the first meeting may take place next week under the aegis of the noble Lord, Lord Dubs, who was already mentioned in the debate—is a good possibility for this Parliament to engage much more on closer studies of Moldova with an earnest and sincere wish to help that country without excessive interference in its internal affairs, which would not be right. The EU permanent mission has at last been opened in the capital city. Therefore, I hope that that will be built up and will eventually give relatively more ignorant politicians like myself the opportunity to visit such countries and to get to know what the EU is doing. That is not a specific plea but a general aspiration.
	I want to emphasise one or two points about Moldova. I think that it is right to say that there have not been any official visits from the United Kingdom in about 15 years of democracy. Perhaps the Minister will announce a forthcoming visit by herself or the noble Lord, Lord Triesman, or whoever might be the relevant Minister. It would be very congenial for us to hear more about that. I believe that I am right in saying that the speaker of the Moldovan Parliament will come in February, presumably also to address the all-party group. Moldova needs more attention from Europe, particularly with Transnistria and Gagauzia as serious problems. With trade, we look forward to the resumption perhaps of Moldovan wines coming into this country as they did in the past, as well as other estimable products and exports from that country.
	In the Ukraine, the situation therefore is very different from the other two countries, but the prospects are extremely interesting. Even if the Ukraine has established its aspirations within a certain timetable for membership, that is not something that can automatically be acceded to by any responses in the European Union. At the moment, there are many problems and issues arising. The political revolution—coloured orange rather than blue as in Moldova, if that will be a revolution in due course in the full sense of the word, but Moldova already is a democracy—in the Ukraine does not seem to be so firmly based now. There are many question marks over what will happen in the parliamentary cockpit there over coming months with the current crisis and the hesitations in the co-operation between parties.
	I conclude with one or two comments on the largest country of the three in order to finalise that aspect of the debate. Most political factions in the Ukraine advocate joining the European Union and developing ties with Europe. But many in the EU are more doubtful about Ukraine's particular prospects. As we know, Commissioner Günter Verheugen said that a European perspective for the Ukraine does not necessarily mean membership for some considerable time. That has to be borne in mind without sounding too discouraging. Ukraine will most likely develop some kind of intermediate relation with the EU, but also continue its links, as a noble Lord said earlier in this debate, with the Commonwealth of Independent States.
	Those therefore are the pictures that we see at the moment, with the message that the European Union has to respond to any country that applies to it. Eventually they will subscribe—not necessarily in the immediate offering as it approaches the European Union for possible future membership—to the conditions for the transitional period, the total acquis communautaire—however long it may be; it has to be lengthy obviously for all of the complexities involved—and then for future full membership. If a transitional period is longer than we see with the seven years of recent examples, that necessarily would not be a very bad thing. As long as countries feel that they get a response when they knock on the door, I think that noble Lords will be more than satisfied. But it depends on the complex differentiation between the three countries in this debate.

Baroness Rawlings: My Lords, I add my thanks to the noble Lord, Lord Ponsonby of Shulbrede, for securing this debate. Sadly, I must join the noble Lord, Lord Dykes, in admitting that I too have not visited any of the three countries we are discussing today, so I hope that I will be forgiven for not having the expert knowledge of most of your Lordships. The noble Lord, Lord Ponsonby, has been consistent in his efforts to draw the attention of the House to the important issues that affect these three east European countries and, as before, this is a timely debate. When considering the European Union (Accessions) Bill on Tuesday, we again welcomed enlargement and the inclusion of Romania and Bulgaria in the European Union. Before Christmas my noble friend Lord Dundee highlighted our hope that negotiations will eventually lead to the membership of Croatia and Turkey.
	The European Union has always acknowledged the need for closer co-operation with countries on its new borders, but there is still a vast amount to do regarding the EU's relationship with the Ukraine, Moldova and Belarus. As with Romania's accession, there are opportunities and challenges associated with Moldova, including, as pointed out in a Written Answer in another place by the right honourable Douglas Alexander,
	"the problems presented by the frozen conflict in Transnistria [which] will lie on the EU's common external border".—[Official Report, Commons, 10/10/05; col. 123W.]
	We need not look further than the example of the Ukraine gas dispute over the past few weeks to see how these border countries' relationships with the EU can either complement or cause trouble. The gas dispute in the Ukraine has been portrayed as having political roots, a way for Russia to punish Kiev for pursuing closer links with the European Union and NATO despite, as we heard from the noble Lord, Lord Giddens, having received $5 billion a year from Russia. I would be interested to know for how many years this payment has been made.
	This dispute has directly affected EU member states, a point made by other noble Lords, because 80 per cent of EU gas supplies are transported through pipelines in the Ukraine. It is clear that the problems surrounding these countries are becoming acute. In the light of this, can the noble Baroness indicate what the Government's response is to suggestions that the European Union should move towards a common energy policy, as mentioned by my noble and learned friend Lord Howe of Aberavon? Can she also indicate what reappraisals the Government are making to our own energy policy, which involves a heavy reliance on imported gas supplies, bearing in mind the recent dispute?
	European Union relations with the Ukraine, in comparison with the other two countries, are more productive. Indeed, the gas dispute I have just mentioned shows how far they have come. They build on the current Partnership and Co-operation Agreements which will come up for renewal in two years' time. This highlights shared fundamental values regarding peace and stability, described so clearly by my noble friend Lord Bowness. That is an essential element of the EU/Ukraine relationship. Given that, what pressure is Her Majesty's Government exerting to make certain that the EU supports the application made by the Ukraine to the WTO and its adoption of the necessary bilateral rules that go with it?
	As I have stated in previous debates, the assumption that the regional degrouping which took place after the collapse of the Soviet Union would result in the Ukraine, Moldova and Belarus remaining closely allied with Russia has been proved questionable more than once. These former Soviet countries have experienced serious social and economic problems, as well as problems regarding human rights, democracy and the rule of law. The Organisation for Security and Co-operation in Europe has raised concerns and criticised all three countries regarding their political situation and key areas where elections have fallen short of international standards. Thankfully, the people of the Ukraine took measures into their own hands through the Orange Revolution earlier last year.
	In 2004, in the debate initiated by the noble Lord, Lord Ponsonby, I stated that Belarus remains a thorny issue. President Lukashenko's moves towards authoritarian rule and his rejection of the several overtures made by the European Union to assist the return to basic democratic standards are of great concern, bearing in mind the importance of Belarus as an EU neighbour.
	Belarus remains the furthest out on a limb of the three countries in question. It has never expressed, either, any interest in joining the European Union, as the noble Lord, Lord Ponsonby, told us. It remains the only European successor state of the former USSR without even a ratified Partnership and Co-operation Agreement. Its application for WTO membership is still under consideration now, 11 years later.
	I am sad to say that the situation as it stands today has not significantly changed. In fact I understand that even Moscow is showing increasing signs of exasperation with the Belarusian authorities.
	The FCO human rights report argues that the Belarus human rights record remains poor, whilst a recent report by Adrian Severin, the UN Special Rapporteur, goes further and is highly critical of the situation. Can the noble Baroness inform the House what steps Her Majesty's Government will take to make certain that the statement issued by the UK during its presidency of the European Union in August 2005 referring to the recent developments in Belarus is followed up by concerted EU action? Do they intend to take any bilateral action outside of the statement?
	I was most fascinated by the speech of the noble Lord, Lord Hylton, and his detailed knowledge of Moldova. Moldova's president stated that,
	"integration with Europe is an absolute priority in Moldova's foreign policy".
	With Georgia, too, as we heard in the interesting speech of the noble Lord, Lord Giddens. However, the FCO human rights report of 2005, whilst mentioning the commendable work that is being undertaken, highlighted that there are still serious allegations of,
	"ill treatment and torture of suspects and prisoners by Moldovan police officers, as well as worrying levels of corruption within the . . . police force and the judiciary".
	The United Nations Committee on Human Rights, Racial Discrimination and the Rights of the Child has expressed grave concerns over child abuse problems. Unfortunately, this pales in comparison to the human rights situation in Transnistria. What discussions have Her Majesty's Government had with both the Moldovans and the Russians on this issue?
	We welcomed the European Neighbourhood Policy, ENP, to which the FCO report referred. It highlighted that the ENP would receive,
	"substantial financial assistance, and that the European Commission will develop Action Plans with each country".
	Can the noble Baroness highlight how Her Majesty's Government intends to support the ENP and make certain it is implemented, and how this will fit in with the Partnership and Co-operation Agreements?
	I have but touched on the issues surrounding these increasingly important countries. I hope the noble Baroness can provide us with some of the answers we are seeking, and especially some guideline to the important question from the noble Lord, Lord Giddens, regarding the EU institutional reforms needed to cope with the enlargement of the European Union.
	The Centre for European Reform has rightly said that,
	"The EU can never be safe so long as their neighbours are poor and unstable, rife with the trafficking of arms, drugs and people".

Baroness Royall of Blaisdon: My Lords, like other noble Lords, I am grateful to my noble friend Lord Ponsonby for tabling this timely debate. He has great knowledge of this part of our common European home, and I am delighted to join this select band of interested and expert Peers.
	Ukraine, Belarus and Moldova are a high priority for the UK and the European Union. The accession of the 10 new member states from central and eastern Europe in May 2004 has put this important region on the EU's eastern common border. It has also brought into the EU new member states that have long cultural, historical and economic links to the three countries and a new level of expertise and interest.
	I agree with the noble and learned Lord, Lord Howe, that the orange revolution in Ukraine at the end of 2004 marked a new beginning not only for that country but for the region. It was a major landmark in the spread of democracy, human rights and the rule of law. Following the election of President Yushchenko on Boxing Day 2004, Ukraine set eventual integration with the EU and NATO as its clear strategic goal, but, as my noble friend Lord Ponsonby pointed out, there is much work to be done to take forward reform and especially to tackle corruption. Against that background, we made Ukraine one of our presidency priorities and aim to progress EU policy there and across the region. Our aims were, and are, to support and encourage democracy and economic reform in all three countries. I was interested to read that today Ukraine becomes the 40th member of the Group of States against corruption, a Council of Europe body. That is very much to be welcomed.
	One of our prime tools for encouraging democracy and economic reform in these countries is the EU's European neighbourhood policy, which was the initiative of the United Kingdom in 2002, in particular the action plans signed between the EU, Moldova and Ukraine in February 2005. They are wide-ranging documents that provide support for reform across the agenda, from justice and home affairs to tackling corruption and upholding the rule of law. Both countries have truly seized their action plans; they are using them as a tool to take themselves closer to EU standards, and they have made good progress.
	Several points have been raised on the European neighbourhood policy. My noble friend Lord Giddens suggested that it was perhaps a disingenuous policy. I refute that. The policy represents an ambitious new framework for relations with neighbours of the post-enlargement Union. It holds out the perspective of a closer relationship with the European Union in return for progress on internal reforms. Quite rightly, it does not prejudice future applications for EU membership by eligible countries. However, it is extremely important as a means of strengthening stability and security in the countries and in the region. The policy is a real tool for transformation in those countries, so I do not think that it is disingenuous at all.
	Several noble Lords mentioned enlargement. The Government have successfully championed enlargement, as we have seen with Croatia and Turkey, and will continue to do so. With regard to the countries that are our close neighbours and part of the neighbourhood policy, we have to leave the perspective of membership open. We have to encourage them to transform and to adhere to the standards and norms of the European Union, not just in economic terms but, perhaps more important, in terms of value, democracy and human rights. At the same time, it is extremely important that we keep the publics of the countries of the European Union and those of the prospective countries informed, because we must take them with us and ensure that they are fully informed and engaged along the way. That is what we must concentrate on at the moment.
	The noble Lord, Lord Bowness, asked about the financial aspects of the neighbourhood policies. Apparently, EU support for the ENP is via TACIS, which the noble Lord will know. For Moldova, in 2006–07, the EU is providing €42 million. For the Ukraine, we are providing €88 million in 2005 and €100 million in 2006. From the end of 2007, the new European neighbourhood and partnership investment will come into force. The final level of funding is subject to the EU's external relations budget 2007–13, and the UK will work to ensure that there are sufficient funds.
	Our agenda with Ukraine during the UK presidency went wider than the ENP action plan. The Prime Minister and President Yushchenko agreed when they met in February that there should be three priorities to support reform: granting market economy status for Ukraine; progress and support for WTO membership; and beginning visa facilitation negotiations. The EU-Ukraine summit was able give a strong signal of support for the goals of the Orange revolution and further reform. It was a summit of real substance and was widely recognised as the best EU-Ukraine summit to date. Moreover, it was held in Kiev on the anniversary of the Orange revolution—a message that was widely recognised in Ukraine.
	Market economy status was granted in December and the EU strongly endorsed Ukraine's WTO aspirations at the Hong Kong ministerial. Negotiations on facilitated visa agreement and on readmission were launched in November. The second round of negotiations is scheduled for mid-January, and we will naturally put a finalised agreement before Parliament. The EU and Ukraine signed an MOU on energy co-operation as well as agreements on Galileo and aviation.
	Looking ahead, Ukraine faces crucial parliamentary elections in March 2006. They will be a key test of the Ukraine's new democracy and its commitment to European standards. The Ukraine has made good progress in implementing recommendations from the Office of Democratic Institutions and Human Rights of the OSCE and in entrenching media reforms. We expect Ukraine to meet its international commitments and welcome the early invitation to the OSCE to monitor the elections. The UK will contribute to the observer mission.

Lord Dykes: My Lords, are the Government satisfied that the European Union processes for monitoring the nuclear weapons in Ukraine and their supervision and maintenance are proceeding as well as expected?

Baroness Royall of Blaisdon: My Lords, I believe that the UK Government are satisfied, but I will check. I will write to the noble Lord, copy it to noble Lords present and put a copy in the Library.
	As well as supporting political and economic reform in Moldova under the ENP action plan, we aimed in our presidency to try to make some progress on attempts to resolve the frozen conflict in Transnistria. As the noble Lord, Lord Hylton, pointed out, that is a complex problem. Although relations between Moldova and the illegal regime in Transnistria had reached a new low in 2004, there were some positive signs. They included the appointment under the Luxembourg presidency—strongly supported by the UK—of the experienced and able EU special representative, Jacobovits, and a new positive approach from Yushchenko's Ukraine. I assure the House that the special representative is adequately financed and resourced. I take note of the suggestion from the noble Lord, but I believe that the fact that we now have a special representative is an important step forward.
	Building on those developments, we were able during our presidency to take two major steps forward. First, we secured agreement to include the EU, together with the US, as an observer in the five-sides settlement talks on Transnistria. Secondly, we were able to launch an EU border assistance mission to monitor the border between Moldova and Ukraine. The border mission is particularly important, as not only does it put pressure on the illegal regime in Transnistria, but it helps tackle smuggling of goods and people from the region into the EU. Finally, the European Commission opened a delegation in Chisinau during the UK presidency—a small but highly symbolic step for Moldova. I warmly welcome the establishment of the inter-parliamentary group on Moldova by my noble friend Lord Dubs. I can confirm that the Speaker of Moldova will be visiting the UK in the near future.
	Belarus is clearly in a completely different situation from either Ukraine or Moldova. Over the past couple of years the political and human rights situation in Belarus has been getting worse as President Lukashenko seeks to isolate the regime and prevent a coloured revolution in Belarus. We have seen opposition figures arrested and imprisoned on trumped-up charges; the closing of the European Humanities University; harassment of political parties and a restrictive law on NGOs; the closing down of opposition newspapers; and a new anti-revolution law designed to muzzle dissent. The EU has a well established policy on Belarus in the form of the benchmarks and a common position, which seek to offer Belarus better relations with the EU in return for improved behaviour on democracy and human rights.
	Our aim during the UK presidency was to operationalise policy against the background of the deteriorating political situation. We believe that we succeeded in this. At the November GAERC, the EU laid down a clear marker that we expect the forthcoming presidential elections to be free and fair and that the EU is prepared to take further appropriate restrictive measures if they are not. The Austrians will now take this forward during their presidency and we stand ready to provide election observers to the OSCE's international election observer mission.
	At the same time as holding the regime to account and focusing on the elections, we also recognise the need to reach out further to the Belarusian people. We are not giving up on Belarus. We therefore outlined further steps to be taken by the EU to step up contact with the Belarusian people and to strengthen support for civil society, including through technical assistance and by opening an EU office in Minsk. To this effect the EU has transferred €2 million from its TACIS programme to the more flexible EIDHR programme. I assure the noble Baroness, Lady Rawlings, that we will ensure that all the steps that we agreed on during our presidency we will follow up on diligently.
	In response to the question asked by the noble Lords, Lord Bowness and Lord Hylton, about whether we are holding Russia to its Istanbul commitments to withdraw troops to Transnistria, we certainly continue to urge Russia to fulfil the 1999 Istanbul commitments on Moldova and Georgia. NATO Foreign Ministers issued a robust statement on 8 December calling on Russia to resume complete withdrawal of Russian military forces from Moldova as soon as possible. The noble Lord, Lord Hylton, is absolutely correct when he says that there must be a peaceful solution to the divisions in Moldova, with the state capable of associating freely with the EU and the CIS.
	The noble Baroness asked whether this Government were in favour of an EU energy policy. We certainly are; this is one of the key policy issues that was discussed in the meeting at Hampton Court, and there was certainly wide agreement on that matter.
	We believe that the UK made strong progress in taking EU policy forward in support of democracy and reform in Ukraine, Moldova and Belarus during our presidency. It is certainly an achievement of our presidency. This is widely recognised by partners and by EU institutions, all of which have thanked the UK for its professional and transparent handling of the EU's agenda for these countries over the last six months. Clearly our relations with Ukraine, Belarus and Moldova will grow in importance over the coming years, to the benefit of the people of those countries, as well as of the European Union.
	I realise I have not answered all questions, not least that from my noble friend Lord Giddens about the future of the European Union. I feel that is a debate for the future, and one I would be anxious to have.

House adjourned at twenty minutes before seven o'clock.

Thursday, 12 January 2006.